[Federal Register Volume 76, Number 108 (Monday, June 6, 2011)]
[Rules and Regulations]
[Pages 32816-32838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13819]



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Vol. 76

Monday,

No. 108

June 6, 2011

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 434, 438, and 447



Medicaid Program; Payment Adjustment for Provider-Preventable 
Conditions Including Health Care-Acquired Conditions; Final Rule

  Federal Register / Vol. 76 , No. 108 / Monday, June 6, 2011 / Rules 
and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 434, 438, and 447

[CMS-2400-F]
RIN 0938-AQ34


Medicaid Program; Payment Adjustment for Provider-Preventable 
Conditions Including Health Care-Acquired Conditions

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule will implement section 2702 of the Patient 
Protection and Affordable Care Act which directs the Secretary of 
Health and Human Services to issue Medicaid regulations effective as of 
July 1, 2011 prohibiting Federal payments to States under section 1903 
of the Social Security Act for any amounts expended for providing 
medical assistance for health care-acquired conditions specified in the 
regulation. It will also authorize States to identify other provider-
preventable conditions for which Medicaid payment will be prohibited.

DATES: These regulations are effective on July 1, 2011.

FOR FURTHER INFORMATION CONTACT: Venesa Day, (410) 786-8281, or Marsha 
Lillie-Blanton, (410) 786-8856.

SUPPLEMENTARY INFORMATION:

Acronyms

    To assist the reader, the following list of the acronyms are 
used in this final rule:

AHRQ Agency for Healthcare Research and Quality
BPM Benefit Policy Manual
CABG Coronary artery bypass graft
CBO Congressional Budget Office
CDC Centers for Disease Control and Prevention
DVT Deep vein thrombosis
ESRD End-stage renal disease
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted on 
February 8, 2006)
FFP Federal financial participation
FY Fiscal year
HAC Hospital-acquired condition
HCAC Health care-acquired condition
ICR Information collection requirement
IH Inpatient Hospital
IPPS Inpatient prospective payment system
MS-DRG Diagnosis-related group
NCA National coverage analysis
NDC National coverage determination
NQF National Quality Forum
OACT [CMS] Office of the Actuary
OIG Office of Inspector General
OMB Office of Management and Budget
OPPC Other provider-preventable condition
PE Pulmonary embolism
POA Present on admission
PPC Provider-preventable condition
PRA Paperwork Reduction Act
RFA Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354)
RIA Regulatory impact analysis
SMDL State Medicaid Director Letter
SPA State plan amendment
UMRA Unfunded Mandates Reform Act of 1995 (Pub. L. 104-04, enacted 
on March 22, 1995)
UTI Urinary tract infection

I. Background

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to the States for Medicaid programs to provide medical 
assistance to persons with limited income and resources. While Medicaid 
programs are administered by the States, they are jointly financed by 
the Federal and State governments. Each State establishes its own 
eligibility standards, benefits packages, payment rates, and program 
administration for Medicaid in accordance with Federal statutory and 
regulatory requirements. Operating within broad Federal parameters, 
States select eligibility groups, types, and range of services, payment 
levels for services, and administrative and operating procedures. Each 
State Medicaid program must be described and administered in accordance 
with a Federally-approved ``State plan.'' This comprehensive document 
describes the nature and scope of the State's Medicaid program, and 
provides assurances that it will be administered in conformity with all 
Federal requirements.
    The Federal government pays its share of medical assistance 
expenditures to the State on a quarterly basis according to a formula 
described in sections 1903 and 1905(b) of the Act. Specifically, 
section 1903 of the Act requires that the Secretary (except as 
otherwise provided) pay to each State which has a plan approved under 
title XIX, for each quarter, an amount equal to the Federal medical 
assistance percentage of the total amount expended during such quarter 
as medical assistance under the State plan.
    Among the statutory requirements for Medicaid State plans, section 
1902(a)(4) of the Act requires that State plans provide for methods of 
administration as are found to be necessary by the Secretary for the 
proper and efficient operation of the plan. Section 1902(a)(6) of the 
Act requires that a State plan for medical assistance provide that the 
State agency will make such reports, in such form and containing such 
information, as the Secretary may from time-to-time require, and comply 
with such provisions as the Secretary may from time-to-time find 
necessary to assure the correctness and verification of such reports. 
In addition, section 1902(a)(19) of the Act requires that a State plan 
for medical assistance provide such safeguards as may be necessary to 
assure that eligibility for care and services under the plan will be 
determined, and such care and services will be provided, in a manner 
consistent with simplicity of administration and the best interests of 
the recipients.

A. The Medicare Program and Quality Improvements Made in the Deficit 
Reduction Act of 2005 (DRA) (Pub. L. 109-171)

    Title XVIII of the Act provides authority for the Secretary to 
operate the Medicare program, which provides payment for certain 
medical expenses for persons 65 years of age or older, certain disabled 
individuals, and persons with end-stage renal disease (ESRD). Medicare 
benefits include inpatient care, a wide range of medical services, and 
outpatient prescription drugs.
    The Medicare statute authorizes the Secretary, in the course of 
operating the Medicare program, to develop, implement, and monitor 
quality measures, as well as take other actions, to ensure the quality 
of the care and services received by Medicare beneficiaries.
    Payment under the Medicare program for inpatient hospital services 
is generally based on the ``inpatient prospective payment system'' 
(IPPS) described in section 1886(d) of the Act. Hospitals receive a 
payment for each inpatient discharge based in part on diagnosis codes 
that identify a ``diagnosis-related group'' (MS-DRG). Assignment of an 
MS-DRG can take into account the presence of secondary diagnoses, and 
payment levels are also adjusted to account for a number of hospital-
specific factors.
    Section 5001(a) of the Deficit Reduction Act of 2005 (Pub. L. 109-
171, enacted on February 8, 2006) (DRA) amended section 1886(b)(3)(B) 
of the Act to expand the set of hospital quality measures collected by 
Medicare. In particular, this provision directed the Secretary to start 
collecting baseline measures set forth by the Institute of Medicine in 
its November 2005 report. In FY 2008 and subsequent years, the 
Secretary was required to add other measures that reflect consensus 
among affected parties. The provision also allowed the Secretary to 
replace and update existing quality measures. The statute mandates that 
the Secretary establish a process for hospitals to review data that 
will be made public

[[Page 32817]]

and, after that process is complete, requires the Secretary to post 
measures on the Hospital Compare Internet Web site.
    Section 5001(c) of the DRA amended section 1886(d)(4) of the Act to 
adjust payment to hospitals for certain preventable hospital-acquired 
conditions (HACs) identified by the Secretary. Specifically, under 
section 1886(d)(4)(D)(iv) of the Act, the Secretary is required to 
select codes associated with at least two conditions to be identified 
as HACs. These conditions are required to have the following 
characteristics: (a) High cost or high volume or both; (b) result in 
the assignment of a case to a MS-DRG that has a higher payment when 
present as a secondary diagnosis; and (c) could reasonably have been 
prevented through the application of evidence-based guidelines. Section 
5001(c) of the DRA provides for revision of the list of conditions from 
time to time, as long as it contains at least two conditions.

B. Previously Specified Medicare HACs

    Under the provisions of section 1886(d)(4)(D)(ii) of the Act, when 
a HAC is not present on admission (POA), but is reported as a secondary 
diagnosis associated with the hospitalization, the Medicare payment 
under IPPS to the hospital may be reduced to reflect that the condition 
was hospital-acquired. More specifically, the hospital discharge cannot 
be assigned to a higher paying MS-DRG if the secondary diagnosis 
associated with the HAC was the only reason for this assignment.
    Since October 1, 2007, hospitals subject to the IPPS have been 
required to submit information on Medicare claims specifying whether 
diagnoses were POA. The POA indicator reporting requirement and the HAC 
payment provision apply to IPPS hospitals only. This requirement does 
not apply to hospitals exempt from the IPPS.
    The following is a list of the Medicare HACs for FY 2011 (75 FR 
50084 through 50085):

 Foreign Object Retained After Surgery.
 Air Embolism.
 Blood Incompatibility.
 Stage III and IV Pressure Ulcers.
 Falls and Trauma.
    + Fractures.
    + Dislocations.
    + Intracranial Injuries.
    + Crushing Injuries.
    + Burns.
    + Electric Shock.
 Manifestations of Poor Glycemic Control.
    + Diabetic Ketoacidosis.
    + Nonketotic Hyperosmolar Coma.
    + Hypoglycemic Coma.
    + Secondary Diabetes with Ketoacidosis.
    + Secondary Diabetes with Hyperosmolarity.
 Catheter-Associated Urinary Tract Infection (UTI).
 Vascular Catheter-Associated Infection.
 Surgical Site Infection Following:
    + Coronary Artery Bypass Graft (CABG)--Mediastinitis.
    + Bariatric Surgery.
    --Laparoscopic Gastric Bypass.
    --Gastroenterostomy.
    --Laparoscopic Gastric Restrictive Surgery.
    + Orthopedic Procedures.
    --Spine.
    --Neck.
    --Shoulder.
    --Elbow.
 Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE).
    + Total Knee Replacement.
    + Hip Replacement.

    The Secretary may revise this list upon review and does so through 
notice and comment rulemaking.

C. Previously Specified Medicare National Coverage Determinations (NCD)

    In 2002, the National Quality Forum (NQF) published ``Serious 
Reportable Events in Healthcare: A Consensus Report'', which listed 27 
adverse events that were ``serious, largely preventable and of concern 
to both the public and health care providers.'' These events and 
subsequent revisions to the list became known as ``never events.'' This 
concept and need for the proposed reporting led to NQF's ``Consensus 
Standards Maintenance Committee on Serious Reportable Events,'' which 
maintains and updates the list which currently contains 29 items.
    The Medicare program has addressed certain ``never events'' through 
national coverage determinations (NCDs). Similar to any other patient 
population, Medicare beneficiaries may experience serious injury and/or 
death if they undergo erroneous surgical or other invasive procedures 
and may require additional healthcare to correct adverse outcomes that 
may result from such errors. To address and reduce the occurrence of 
these surgeries, CMS issued three NCDs. Under these NCDs, CMS does not 
cover a particular surgical or other invasive procedure to treat a 
particular medical condition when the practitioner erroneously 
performs: (1) A different procedure altogether; (2) the correct 
procedure but on the wrong body part; or (3) the correct procedure but 
on the wrong patient. Medicare will also not cover hospitalizations and 
other services related to these non-covered procedures.

D. Prior Guidance on Medicaid HACs and NCDs in Response to Medicare's 
Policy

    Section 5001(c) of the DRA addressed only payment under the 
Medicare IPPS and did not require that Medicaid implement nonpayment 
policies for HACs. However, in light of the Medicare requirements, we 
encouraged States to adopt payment prohibitions on provider claims for 
HACs to coordinate with the Medicare prohibitions under section 
1886(d)(4)(D) of the Act. To accomplish this task, we issued State 
Medicaid Director Letter (SMDL) 08-004 on July 31, 2008. In 
the July 31, 2008 SMDL, we noted that there was variation in how State 
Medicaid programs had addressed such claims in the past. The letter 
noted that nearly 20 States already had, or were considering, 
eliminating payment for some or all of the 28 conditions on the NQF's 
list of Serious Reported Events. Other States had more limited efforts 
to deny payment for services related to such conditions because the 
services were ``medically unnecessary'' in light of the primary 
diagnosis.
    Recognizing this variation and addressing the immediate concern of 
the States over Federal cost-shifting that could result from the 
Medicare HAC policy as applied to those who are dually-eligible for 
Medicare and Medicaid, we took a flexible position in the July 31, 2008 
SMDL guidance on State Medicaid handling of the issue. The SMDL 
indicated that States seeking to implement HAC nonpayment policies 
could do so by amending their Medicaid State plans to specify the 
extent to which they would deny payment for an HAC. Those interested 
only in avoiding secondary liability for Federal Medicare denials of 
HACs and NCDs in the case of dual-eligibles could do so by amending 
their State Plan to indicate that payment would not be available for 
HACs and the procedures described in the three NCDs that are not paid 
by Medicare. States that wanted broader payment prohibitions could 
indicate that payment would not be available for conditions specified 
in the State plan amendment (SPA), or that meet criteria identified in 
the SPA.

E. Section 2702 of the Affordable Care Act

    Section 2702 of the Affordable Care Act requires that the Secretary 
implement Medicaid payment adjustments for health care-acquired 
conditions (HCACs). Section 2702 of the

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Affordable Care Act did not grant the Secretary new authorities, 
indicating that existing statutory authorities are sufficient to 
fulfill the obligation. Section 2702(a) of the Affordable Care Act sets 
out a general framework for application of Medicare prohibitions on 
payment for HCACs to the Medicaid program. Section 2702(a) of the 
Affordable Care Act first directs the Secretary to identify current 
State practices that prohibit payment for HCACs and to incorporate the 
practices identified, or elements of such practices, which the 
Secretary determines appropriate for application to the Medicaid 
program in regulations. Section 2702(a) of the Affordable Care Act then 
requires that, effective as of July 1, 2011, the Secretary prohibit 
payments to States under section 1903 of the Act for any amounts 
expended for providing medical assistance for HCACs specified in 
regulations. Such regulations must ensure that the prohibition on 
payment for HCACs shall not result in a loss of access to care or 
services for Medicaid beneficiaries.
    Section 2702(b) of the Affordable Care Act defines the term 
``health care-acquired condition'' as ``a medical condition for which 
an individual was diagnosed that could be identified by a secondary 
diagnostic code described in section 1886(d)(4)(D)(iv) of the Act.''
    Section 2702(c) of the Affordable Care Act specifically requires 
that the Secretary, in carrying out section 2702 of the Affordable Care 
Act, apply the regulations issued under section 1886(d)(4)(D) of the 
Act relating to the prohibition of payments based on the presence of a 
secondary diagnosis code specified by the Secretary in such 
regulations, as appropriate for the Medicaid program. The Secretary may 
exclude certain conditions identified under title XVIII of the Act for 
nonpayment under title XIX of the Act when the Secretary finds the 
inclusion of such conditions to be inapplicable to beneficiaries under 
title XIX of the Act.
    We believe, and confirmed through public comment, that 
incorporating Medicare's HACs in Medicaid's policy is inherently 
complex because of population differences across programs. We fully 
understand that the HACs developed for Medicare's population will not 
directly apply to various subsets of Medicaid's population. While we 
have established Medicare as a baseline, we understand that States 
will, through their payment policies, appropriately address these 
differences.

F. Requirement To Review Existing State Practices Prohibiting 
Nonpayment Policies for HCACs

    Section 2702 of the Affordable Care Act requires that the Secretary 
identify current State practices that prohibit payment for HCACs and 
incorporate those practices, as appropriate, into Medicaid regulations.
    To fulfill the statutory direction, we reviewed existing SPAs 
originally submitted in response to the July 31, 2008 SMDL 
(08-004). We also researched State HCAC-related nonpayment 
policies that had been implemented outside of Medicaid State plans. We 
reviewed State quality assurance programs, pay-for-performance 
programs, reporting requirements and procedures, and payment systems.
    We reviewed various articles, reports, summaries, and data bases 
pertaining to States' existing practices concerning hospital and HCACs 
and infections. For a list of the items considered, see the February 
17, 2011 proposed rule (76 FR 9283, 9286 through 9287).
    We discussed internally within CMS, as well as with interagency 
partners at the Agency for Healthcare Research and Quality (AHRQ) and 
the CDC to ensure that the proposed regulations were consistent with 
other regulations, policies, and procedures currently in existence 
surrounding this issue. We also met with them to gain information on 
areas where we could mirror existing processes to eliminate undue 
burdens on States or providers.
    We issued a State survey to capture data from all related payment 
policies regardless of whether they were implemented as a result of the 
July 31, 2008 SMDL or whether such practices are currently detailed in 
the State plan. We have received helpful information from a few States 
through the survey and have reviewed other information that has been 
helpful in explaining current State processes for making payment 
adjustments for HCACs. Subsequent to the publication of the survey, we 
held all-State calls where we answered questions in response to the 
survey, had States with existing policies talk about their experiences, 
and listened to discussion regarding the implementation of the HCAC 
policy.
    We met with nongovernmental partners including the NQF, the 
National Academy for State Health Policy, the National Association of 
Children's Hospitals, the Joint Commission, and State Medicaid Medical 
Directors. Most of these organizations are primarily focused on State 
program development and/or quality issues. We reached out to them to 
ensure that the proposed policies were consistent with current industry 
understanding of both State payment and quality improvement goals. In 
our discussions with these organizations, we were able to discuss State 
experiences on a broad, national level that had been gained from 
working with States. During these meetings, we discussed a number of 
issues related to the proposed rule and State concerns in implementing 
this provision. For instance, it was clear from many of our discussions 
that States hoped to be able to look to this provision to provide 
additional definition regarding the types of conditions to identify for 
nonpayment, as well as to provide some support in working with provider 
communities to which these policies would be applied.

G. Current State Practices Prohibiting Payment for HACs, HCACs, and 
Other Similar Events

    We found that 29 States do not have existing HCAC-related 
nonpayment policies. Most of the 21 States that currently have HCAC-
related nonpayment policies identify at least Medicare's HACs for 
nonpayment in hospitals. However, it is important to note that at least 
half of the existing policies we reviewed exceeded Medicare's current 
HAC requirements and policies, either in the conditions identified, the 
systems used to indicate the conditions, or the settings to which the 
nonpayment policies applied. These policies vary tremendously from 
State to State in the authority used to enact the policies, the 
terminology used, the conditions identified, State's utilization of the 
current Medicare HAC list, the service settings to which nonpayment 
policies are applied, reporting requirements, and the claims processing 
of the nonpayment policies.
    All of the States with HCAC-related nonpayment policies have 
implemented provisions that would protect the State from dual-eligible 
liability either by directly prohibiting payment for Medicare crossover 
claims or by relying on existing State plan authority to deny payment 
for claims previously denied by Medicare.
    We found that 17 of the States implemented Medicaid specific 
policies that reduce payment for services provided to Medicaid 
beneficiaries. Most of the States implementing Medicaid specific 
policies identify at least Medicare's current list of HACs, and nearly 
half of those States defined a list that was different from Medicare's 
current list of HACs for nonpayment.

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    Similar variation exists in States' plan language identifying 
Medicare's NCD for nonpayment ranging from mirroring Medicare to 
completely breaking from Medicare. We do note, however, that the nature 
of the NQF serious reportable events, like surgery on the wrong body 
part, proper surgery wrong patient, and wrong surgery, is so severe 
that States were likely to have relied on State coverage provisions and 
appropriate care requirements to deny payment for these events.
    We also found that States use different general terminology for 
HCAC-related nonpayment policies even though many of the conditions 
identified overlap, are from the same sources, and do not generally 
vary in medical definition from one list to the other. For example, 3 
States identify ``air embolism'' as a condition for nonpayment under 
its plans with the condition understood to be consistently defined for 
medical purposes. However, one State includes air embolisms on its list 
of ``HACs''; another includes the same condition as a ``Serious Adverse 
Event''; and the third includes it on a list of ``Medical Errors.''
    We also found that at least 7 of the States with HCAC-related 
nonpayment policies apply those policies to settings other than the 
inpatient hospital setting required by Medicare, including both 
physicians and ambulatory surgical centers.
    Variation across States is not surprising given the States have 
been permitted broad flexibility in defining their HCAC policies and 
programs. However, we attribute some of the variety on this issue to 
the wealth of information and evidence-based guidelines available to 
States, either through their own experiences and resources or through 
industry researched and developed resources related to health system 
quality. Data gathered on the conditions identified, reporting 
strategies, and implementation guidelines indicate that States have 
relied heavily on existing health system quality improvement research 
to define requirements while tailoring policies appropriate to their 
own systems. In addition, our research indicates that States' HCAC-
related nonpayment policies are mainly intended to drive broader health 
system agendas to promote quality outcomes. We believe the use of 
evidence-based measures and the push for health system quality are an 
appropriate foundation for the proposed regulation. We proposed to 
implement Medicaid HCAC regulations that would provide some consistency 
across health care payers (Medicare and Medicaid). At the same time, we 
also proposed to accommodate State flexibility to design individual 
HCAC policies for nonpayment, quality-related programs suitable for 
their own Medicaid program and health marketplace to the extent such 
policies go beyond Federally-established minimum standards. The July 
31, 2008 SMDL (08-004) instructed States to submit SPAs to 
enact nonpayment provisions. Thirteen States submitted SPAs to include 
PPC related nonpayment provisions in their Medicaid State plans. Other 
States that implemented these policies through some other authority 
like State law or administrative procedures will be required to submit 
new SPAs for review and work with CMS to ensure their policies, 
effective July 1, 2011, are in line with the final provisions of this 
rule.

H. Provider Preventable Conditions

    The final rule includes the umbrella term, ``Provider-Preventable 
Conditions (PPC)'' which is defined as two distinct categories, Health 
Care-Acquired Conditions (HCAC) and Other Provider-Preventable 
Conditions (OPPC).
    Health Care Acquired Conditions:
     Apply to Medicaid inpatient hospital settings; and
     Are defined as the full list of Medicare's HAC, with the 
exception of Deep Vein Thrombosis/Pulmonary Embolism following total 
knee replacement or hip replacement in pediatric and obstetric 
patients, as the minimum requirements for States' PPC non-payment 
programs.
    Other Provider-Preventable Conditions include the following:
     Apply broadly to Medicaid inpatient and outpatient health 
care settings where these events may occur;
     Are defined to include at a minimum, the three Medicare 
National Coverage Determinations (surgery on the wrong patient, wrong 
surgery on a patient, and wrong site surgery);
     Would allow States to expand to settings other than IH 
with CMS approval by nature of identifying events that occur in other 
settings; and
     Would allow States to expand the conditions identified for 
non-payment with CMS approval, based on criteria set forth in the 
regulation.
    The final rule requires that States revise Medicaid plans to comply 
with this provision and mandates that States implement provider self 
reporting through claims systems. The final rule protects beneficiary 
access to care by eliminating States' ability to unduly impact 
providers for the occurrence of conditions identified. The final rule 
requires that:
     No reduction in payment for a provider preventable 
condition will be imposed on a provider when the condition defined as a 
PPC for a particular patient existed prior to the initiation of 
treatment for that patient by that provider.
     Reductions in provider payment may be limited to the 
extent that the identified provider-preventable conditions would 
otherwise result in an increase in payment; and the State can 
reasonably isolate for nonpayment the portion of the payment directly 
related to treatment for, and related to, the provider-preventable 
conditions.
    While the Statutory effective date is July 1, 2011, CMS intends to 
delay compliance action on these provisions until July 1, 2012.
    We proposed to exercise our authority under sections 1902(a)(4), 
1902(a)(19), and 1902(a)(30)(A) of the Act to provide for 
identification of provider preventable conditions (PPCs) as an umbrella 
term for hospital and nonhospital acquired conditions identified by the 
State for nonpayment to ensure the high quality of Medicaid services. 
These statutory provisions authorize requirements that States use 
methods and procedures determined by the Secretary to be necessary for 
the proper and efficient administration of the State plan, to provide 
care and services in the best interests of beneficiaries, and to 
provide for payment that is consistent with quality of care, 
efficiency, and economy.
    With the introduction of this term, we proposed to include two 
categories of PPCs--HCACs and other provider-preventable conditions 
(OPPCs). HCACs would apply as required under the statute. OPPCs would 
be applicable to other conditions that States identify and have 
approved through their Medicaid State plans.
    The inclusion of the new terms, PPCs and OPPCs, is consistent with 
the implementation of a broader application of this policy which allows 
us to appropriately incorporate existing State practices. The adoption 
of a new term is necessary because the term, ``health care-acquired 
condition'' is very narrowly defined in the Statute and does not 
provide for the inclusion of conditions other than those identified as 
HACs for Medicare, even excludes the three Medicare NCDs. Additionally, 
the Affordable Care Act definition of HCACs only applies to the 
inpatient hospital setting.
    We considered a broader definition of the term, ``health care-
acquired conditions,'' attempting to isolate the idea of the actual 
condition from the setting in which it occurred. Section

[[Page 32820]]

1886(d)(4)(D)(iv) of the Act applies specifically to conditions 
applicable to inpatient hospital patients and reimbursed under the 
IPPS. We did look to the Affordable Care Act in creating the terms PPCs 
and OPPCs.
    We did look to the Affordable Care Act in creating the terms PPC 
and OPPC. Section 3008(b) of the Affordable Care Act, ``Study And 
Report On Expansion Of Healthcare Acquired Conditions Policy To Other 
Providers,'' requires that Medicare study the effects of expanding its 
existing policy to other providers. We adopted the ``Other Providers'' 
term to remain consistent with Medicare in the potential expansion of 
its policy.
    In looking to expand the overall policy, we considered a number of 
other terms but determined that many of them like ``adverse events'' or 
``serious reportable events'' would generate confusion because they had 
existing industry definitions that did not necessarily overlap with our 
policy aims. We adopted the term ``Provider Preventable Condition'' for 
use in Medicaid because it appropriately identified the scope of the 
conditions and could act as a ``catch-all.'' Also, the term had not 
been narrowly defined by use in Medicare, Medicaid, or in the industry 
at-large.

I. Reporting of Results

    After researching State, industry, and Federal information related 
to the importance of reporting of quality data in driving improved 
health outcomes, we proposed that a simplified level of reporting is 
essential to creating a successful nonpayment policy both from the 
payment and quality perspectives. We believe that any requirements for 
provider reporting should provide a consistent format for States to 
report State-specific measures; require that providers report 
conditions identified for nonpayment when they occur regardless of a 
provider's intention to bill; and not cause undue burden on States or 
providers.
    Quality reporting related to PPCs across States is inconsistent. 
There are 27 States that require reporting of either hospital-acquired 
infections, conditions, or some combination of both. Some of those 
States require quality reporting but have not implemented associated 
HCAC-related nonpayment policies. Others have HCAC-related nonpayment 
policies, but have not implemented quality reporting requirements.
    Existing national quality reporting formats do not support the 
collection of data on HCACs and OPPCs for Medicaid beneficiaries. 
Providers, mainly hospitals, are subject to reporting requirements in 
addition to those imposed by States. For instance, most hospitals 
report some quality measures to CMS, the Joint Commission, or the CDC. 
We considered requiring hospitals to report to CMS or the National 
Health Safety Network, but decided against this because of concerns 
about the capacity within these systems to accommodate State specific 
reporting of varied measures and the fact that this might not be 
consistent with what most States are currently requiring providers to 
report.
    HACs, HCACs, and related policies represent liabilities for 
providers beyond nonpayment provisions. In fact, Medicare and the 
industry-at-large, have experienced nonclaiming or nonbilling on the 
part of providers seeking to escape the liability that could come with 
any type of notification of a particular event or to avoid negative 
health outcome indicators.
    In consideration of our research, we proposed a requirement that 
existing claims systems be used as a platform for provider self-
reporting. We also proposed to include reporting provisions that would 
require provider reporting in instances when there is no associated 
bill. For instance, States could employ the widely used POA system in 
combination with including edits in their Medicaid claims systems that 
would indicate an associated claim and flag it for medical review.

J. States' Use of Payment Systems Other Than MS-DRG

    We also found that States' payment systems will dictate the manner 
in which States are able to operationalize PPCs related nonpayment 
policies. For instance, some States reimburse using MS-DRG or some 
other type of grouper software to price claims. As with Medicare, these 
States may use the POA indicator system to identify claims and reduce 
payments by programming the grouper to reduce payment through the 
grouper. We note that a considerable number of States do not use 
grouper systems to reimburse providers. These States may identify and 
reduce payment for HCACs using methods appropriate to the specific 
reimbursement system used within that State. We believe that the 
proposed provision allows States this type of flexibility in designing 
methodologies that would isolate amounts for nonpayment and allow 
provider payment to be reduced based on a CMS-approved State plan 
methodology that is prospective in nature.

II. Summary of the Provisions of the Proposed Rule and Analysis of and 
Responses to Public Comments

A. General Discussion

    We proposed to codify provisions that would allow States 
flexibility in identifying PPCs that include, at a minimum, the HACs 
identified by Medicare, but may also include other State-identified 
conditions. This flexibility will extend to applying nonpayment 
provisions to service settings beyond the inpatient hospital setting. 
We believe that establishing Medicare as the minimum for the 
application of this policy is appropriate at this point.
    We encouraged States to consider the benefits and quality 
implications of expanding HCAC quality and nonpayment policies as more 
information becomes available from Medicare and State Medicaid 
programs.
    We proposed that PPCs are defined under two categories: HCACs and 
OPPCs. We proposed to define the category of PPCs that would be 
referred to using the term ``health care-acquired conditions'' (HCACs) 
based on the definition of that term in section 2702(b) of the 
Affordable Care Act. We also noted that the Secretary has authority to 
update the Medicare HAC list as appropriate. As such, States are 
required to comply with subsequent updates or revisions in accordance 
with section 1886(d)(4)(D) of the Act.
    We proposed to require that States implement requirements for 
provider self-reporting of HCACs in the Medicaid claims payment 
process. We also proposed to provide that States may identify similar 
OPPCs related to services furnished in settings other than inpatient 
hospitals, which would also be subject to a payment prohibition.
    We further proposed that the treatment of these OPPCs will be 
similar to the treatment of HCACs. State plans must provide for 
nonpayment for care and services related to these OPPCs, and Federal 
financial participation (FFP) will not be available in State 
expenditures for such care and services related to OPPCs.
    We received the following comments in response to our general 
discussion.
1. General Comments
    Comment: One commenter expressed the view that the original 
Medicare HAC policy adopted by CMS in FY 2008 for hospitals subject to 
the Medicare Inpatient Prospective Payment System (IPPS hospitals), in 
response to the requirements of the DRA, was flawed policy and that 
many physicians disagreed with the notion that some of

[[Page 32821]]

the identified Medicare HACs are reasonably preventable. The commenter 
was opposed to extending these provisions to Medicaid and suggested 
that CMS abandon the notion of a nonpayment policy for HACs in both 
Medicare and Medicaid and replace it with a policy encouraging 
compliance with evidence-based guidelines.
    Response: We disagree. The Medicare HAC payment policy was 
established under the authority of section 5001(c) of the DRA and has 
been in place since FY 2008. Section 2702 of the Affordable Care Act 
requires that CMS adopt similar regulations for the Medicaid program 
taking into consideration existing State practices and the appropriate 
application to the Medicaid program. This regulation, like the Medicare 
HAC rule that preceded it, was developed in direct response to the 
enactment of that provision. While we recognize that some of the PPCs 
are not entirely preventable and should therefore be excluded from the 
program. However, most of these PPCs are never events, which means they 
should never happen, in the first place, and they are entirely 
preventable if providers follow best medical practices. This is true 
regardless of whether a patient is a senior citizen on Medicare or a 
child on Medicaid. PPCs that used to be regarded as not entirely 
preventable, like CLABSI (or CAUTI), have been shown to be preventable 
by providers. We believe that the provisions of this rule will provide 
a strong incentive for the provider to apply best medical practice and 
seek innovative methods to prevent adverse outcomes. The HACs were 
adopted by Medicare through an evidence-based process. In addition, the 
definition used for OPPC in new Sec.  447.26 provides that States must 
consider evidence-based guidelines in adopting optional PPCs.
    Comment: Some commenters supported the policy of payment adjustment 
when conditions were demonstrated to be reasonably preventable based on 
the evidence, but thought that the population differences between 
Medicare and Medicaid may present distinct issues and considerations in 
considering events for nonpayment. Some commenters questioned the 
appropriateness of the application of Medicare HACs to Medicaid 
populations, specifically children and pregnant women.
    Response: We agree that Medicare's population is generally 
different than Medicaid's and that those differences may present 
distinct issues and considerations. We realize that some categories of 
Medicare's HACs, like Surgical Site Infection following CABG or 
Bariatric surgery, are not typically applicable to pediatric or 
obstetric populations because the underlying conditions associated with 
each of Medicare's HACs will not typically occur in those populations, 
thus limiting the frequency and relevance of the HAC. We reviewed each 
of Medicare's HACs and the related evidence-based prevention protocols 
to determine whether the final rule should specifically exclude any of 
the conditions identified by Medicare, with respect to populations more 
characteristic of Medicaid, particularly children and pregnant women. 
We considered each in relation to the following:
    (1) Clinical applicability. That is, does this condition occur in 
pediatric and obstetric populations enough to significantly impact the 
populations or provider reimbursement?
    (2) Availability of evidence based guidelines appropriate to 
prevention for the pediatric and obstetric populations. Are there 
bundles specific to preventing these conditions and infections in the 
pediatric and obstetric populations? If bundles do not exist, are there 
other bundles that can be appropriately applied to these populations?
    (3) Reasonable preventability. Can the conditions or infections be 
reasonably prevented through the use of evidence based guidelines to 
warrant financial penalties? Our research determined that certain 
Medicare HACs, such as Foreign Objects Retained After Surgery, Air 
Embolism, Blood Incompatibility, Stage 3 and 4 Pressure Ulcers, Falls 
and Trauma, and Manifestations of Poor Glycemic Control, Catheter 
Associated Urinary Tract Infections, and Vascular-Catheter Associated 
Blood Stream Infections, are clinically applicable to all Medicaid 
populations, including children and pregnant women. We determined that 
there are evidence-based guidelines to support the reasonable 
preventability of these conditions in pediatric and obstetric 
populations, and that there is no indication that these prevention 
guidelines would cause harm if appropriately applied. There was no 
evidence to indicate that a provider adhering to these evidence based 
guidelines could not reasonably prevent, though not absolutely prevent 
these infections in every case in Medicaid populations.
    Our research determined that Surgical Site Infection following 
CABG, Bariatric Surgery, or Orthopedic procedures is not typically 
applicable to children and pregnant women because it is not likely that 
these populations would be subject to some of the primary surgical 
procedures. However, we determined that there are evidence-based 
guidelines to support the reasonable preventability of Surgical Site 
Infection following the specified procedures when they do occur in 
these populations. Furthermore, there is no indication that these 
prevention guidelines would cause harm when appropriately applied. 
There is no evidence to indicate that a provider adhering to these 
evidence based guidelines could not reasonably prevent, though not 
absolutely prevent, these infections in every case in Medicaid 
populations.
    Our research also determined that the Medicare HAC Deep Vein 
Thrombosis/Pulmonary Embolism (DVT/PE) as related to a total knee 
replacement or hip replacement is not a common occurrence for children 
or pregnant women because it is not likely that these populations would 
be subject to the primary surgical procedures of total knee replacement 
or hip replacement. We determined that evidence-based guidelines 
available support the reasonable preventability of DVT/PE in most 
cases, however, the related prevention protocols have not been proven 
appropriate for application in children and pregnant women. Therefore, 
we are not identifying the Medicare HAC, DVT/PE as related to total 
knee replacement, or hip replacement for pediatric or obstetric 
populations under Medicaid's PPC policy. We have revised the final rule 
to reflect this determination.
    We remind commenters that the Medicare HACs serve as a baseline, 
and that States electing to expand their policies to consider other 
conditions associated with children and pediatric quality measures may 
do so through the SPA process. We encourage States to collaborate both 
with CMS and other States, as well as their provider communities and 
stakeholders like CDC and AHRQ to implement informed policies 
appropriate to their Medicaid populations. We will support State 
efforts and cross-educate, through the State plan amendment process and 
by providing information that we gather from States and other programs.
    Comment: One commenter believed that the expansion of PPCs for 
Medicaid under the proposed rule goes beyond any previous guidance 
shared by CMS with the State during Affordable Care Act-related 
conference calls.
    Response: Discussions held with the States, stakeholder groups and 
various provider communities regarding this policy were necessary to 
determine existing State practices regarding non-payment for health 
care-acquired conditions. They were informational for

[[Page 32822]]

CMS and did not in any way commit the Secretary to a particular policy 
direction. They were also a first effort in allowing States without 
existing policies to gather some general information from and network 
with States with existing policies.
    The final regulation incorporates conditions identified as 
Medicare's HACs, with the exception of DVT/PE as related to total knee 
replacement and total hip replacement for pediatric and obstetric 
populations, and 3 NCDs as the minimum requirement for State PPC 
nonpayment policies. The rule allows States the flexibility, if 
desired, but does not require, States to identify additional conditions 
as PPCs under their Medicaid programs. Additionally, States have 
already begun to develop PPC-related non-payment policies and this rule 
would allow that work to continue.
    Comment: A few commenters believed that there was not sufficient 
time to implement these provisions for providers that had not already 
been subject to Medicare's policy, and were particularly concerned with 
the implementation timeframes for reporting.
    Response: We anticipate that States and providers, especially those 
groups of providers that have not been subject to Medicare's HAC 
policy, will need to work collaboratively to develop policies and 
implement reporting systems that would complement existing payment 
structures. We believe given the timeframes involved and the need for 
States to provide guidance to providers, it would be appropriate to 
delay compliance action on the provisions of the rule until July 1, 
2012.
    Comment: One commenter requested that we strike Sec.  447.26(c)(4) 
because they believed the access requirements proposed there were 
already reflected in 447.204 which requires that payment be sufficient 
to assure beneficiary access. The commenter thought that any dual 
interpretations could lead to unwarranted litigation risks.
    Response: We thank the commenter for this comment. We have revised 
the language at 447.26(c)(4) to clarify that, ``A State plan must 
ensure that non-payment for provider-preventable conditions does not 
prevent access to services for Medicaid beneficiaries.''
2. Conditions Identified and Providers Affected
    Comment: Some commenters pointed out that Medicare's HAC policy 
applies only to Medicare IPPS hospitals. These commenters believed that 
CMS should limit Medicaid PPC payment restrictions to Medicaid 
participating hospitals that are similar to Medicare IPPS hospitals. 
Other commenters asked for clarification on this same point. Most of 
these commenters also believed that we should limit States ability to 
identify other PPCs, proposing that the set of Medicare's HACs and 3 
NCDs be used as a ceiling instead of as a floor for Medicaid's PPC 
policy.
    Response: The Affordable Care Act requires that HACs identified 
under the Medicare IPPS are applicable to all entities that operate as 
Medicaid inpatient hospitals. We do not have the authority to exempt 
any Medicaid inpatient hospital providers from these requirements. 
States currently have the authority to extend PPC-related non-payment 
policies to other conditions.
    Comment: Some commenters objected to the entire category of OPPC 
(affecting providers other than hospitals) included in the proposed 
regulation. Commenters recommended that CMS consider and impose a 
number of parameters related to States' implementation and selection of 
the OPPC category.
    Response: In preparing this regulation, the Statute required that 
CMS consider existing State practices and determine whether, as a 
matter of policy, it was appropriate to include those established 
practices in these final regulations. We determined that, in some 
instances, States had implemented provisions that applied to providers 
in settings other than inpatient hospital settings, including 
outpatient hospital settings. We did not believe that it was prudent to 
require of all States what had been done in a few, but we wanted to 
provide States the flexibility to do so. Accordingly, we designed the 
PPC provisions to allow the expansion of State policies to other care 
settings, and other conditions. In light of the differences between the 
types of participating providers and the enrollee populations in 
Medicare and Medicaid, we provided flexibility for States in the 
identification and application of OPPCs. We anticipate that States will 
consider arguments made by particular providers that these OPPCs should 
be defined so that they do not apply to them. We believe this is the 
appropriate forum for consideration of the unique circumstances of 
particular providers.
    Comment: Some commenters recommended that we consider the benefits 
of and establish a nationally consistent set of conditions identifiable 
as PPCs for Medicaid.
    Response: We determined that the conditions identified as 
Medicare's HACs, with the exception of DVT/PE as related to total knee 
replacement and total hip replacement for pediatric and obstetric 
populations, and 3 NCDs are appropriate to serve as the baseline for 
Medicaid's PPC policy. We are strongly committed to permitting State 
flexibility to innovate in this area. State innovation has been a 
significant driver of Federal policy, and States have direct experience 
with utilization and claims review with respect to Medicaid services.
    Comment: Some commenters suggested that the initial set of 
conditions be more limited and targeted, and that they be expanded 
incrementally over time.
    Response: Section 2702(b) of the Affordable Care Act defines the 
term ``health care-acquired condition'' as ``a medical condition for 
which an individual was diagnosed that could be identified by a 
secondary diagnostic code described in section 1886(d)(4)(D)(iv) of the 
Act.'' The provision also allows the Secretary to exclude conditions 
not appropriate for application in Medicaid. As such, the final 
regulation incorporates conditions identified as Medicare's HACs, with 
the exception of DVT/PE as related to total knee replacement and total 
hip replacement for pediatric and obstetric populations, and 3 NCDs. 
Additionally, we believe that the flexibility provided States in 
developing additional PPCs, beyond those established as the floor in 
the final rule, allow for the type of incremental expansion of this 
policy that the commenters suggest.
    Comment: Other commenters recommended that Medicaid PPCs focus on 
conditions specific to the Medicaid population. A few commenters 
offered that it would be ideal for CMS to evaluate other Medicaid 
specific conditions that would apply specifically to pregnant women or 
children.
    Response: We believe that the flexibility provided States in the 
final rule will facilitate the development of additional Medicaid 
specific conditions to be identified for nonpayment. Some State 
Medicaid programs with existing policies have identified conditions 
specific to certain populations like Obstetrical Hemorrhage with 
Transfusion, which is a condition specific to pregnant women. We 
encourage States to follow CMS's example in identifying conditions by 
working with provider communities and industry partners.
    Comment: A few commenters suggested that CMS coordinate Federal 
PPCs policies across agencies and with other organizations developing 
quality measures specific to Medicaid populations.
    Response: We are actively working to coordinate with other health 
reform initiatives such as the pediatric core quality measures, 
accountable care

[[Page 32823]]

organizations, and health insurance exchanges to develop coordinated 
Federal policy in the area of Health System Quality. We continue to 
collaborate with States, providers, and other stakeholders to inform 
policy decisions related to this area.
    Comment: Some commenters stated that any extension of PPC beyond 
the hospital setting was premature, and emphasized that application of 
PPC to other providers was not feasible because of the different 
patient populations, payment structures and conditions that applied in 
different environments. These commenters stated unique issues in 
various provider settings including long-term care settings, dialysis 
clinics, and skilled nursing facilities.
    Response: We disagree with the point that the PPC provisions should 
be limited to the hospital environment. This rule requires that States 
adopt minimum requirements for each category of PPC. States have the 
flexibility to identify additional OPPCs if desired, but there is no 
requirement to do so. Many States have already identified conditions 
beyond the minimum requirements in this final rule. We understand 
clearly that the category of OPPCs would allow expansion beyond the 
hospital environment and must be done in close consultation with 
affected providers and limited to situations where a State has made a 
finding that the condition could reasonably have been prevented in 
ordinary cases. We have revised regulatory text to make clear that 
these are State determinations that must be made based on State 
findings that the condition is reasonably preventable using procedures 
supported by evidence-based guidelines. The identification of PPCs in 
settings other than the hospital setting makes sense because, from the 
perspective of the patient, it matters very little whether a wrong site 
surgery occurred in a hospital, an ambulatory surgery center, or in a 
minor surgery done in the physician's office. Moreover, States have 
already gone beyond the hospital setting in their individual PPC 
policies. All that this Federal regulation adds is the HCAC category 
which requires nonpayment for the full list of Medicare's HACs, with 
the exception of Deep Vein Thrombosis/Pulmonary Embolism following 
total knee replacement or hip replacement in pediatric and obstetric 
patients and the OPPC category which requires the minimum mandatory 
inclusion of what are now the three Medicare NCDs: Surgery on the wrong 
patient, wrong surgery on a patient, and wrong site surgery. We are 
simply replicating the mandatory provisions in the Medicare program, 
and adding these to the existing State flexibility under Medicaid to 
establish payment and quality standards.
    We encourage States to collaborate both with CMS and other States, 
as well as their provider communities and stakeholders like CDC and 
AHRQ to implement informed policies appropriate to their Medicaid 
populations. We will support State efforts and cross-educate, through 
the SPA process and by providing information that we gather from States 
and other programs.
    Comment: A number of commenters requested that CMS clarify that the 
HCAC category applies only to inpatient hospitals.
    Response: This final rule has revised regulatory language to 
clarify that the HCAC category applies to all inpatient hospital 
settings under Medicaid. The OPPC category minimum requirements 
(Medicare's 3 NCDs) are applicable in any healthcare service setting 
where these events may occur.
    Comment: One commenter expressed concern that expansion of PPC to 
nonhospital providers threatened the access of Medicaid beneficiaries 
to care. In particular, the commenter asked CMS to clarify that 
Medicaid payment disallowance for PPC would not apply when the PPC was 
present at the time the provider commenced treatment of the patient.
    Response: The language in the proposed regulation was intended to 
cover only situations where payment reduction was being applied to 
treatment for a condition not present on admission or commencement of 
treatment by that provider. However, we understand that clarifying the 
language of the regulation to emphasize this point would be helpful and 
have done so in this final regulation. New Sec.  447.26 (c)(2) 
explicitly states that ``* * * no reduction in payment for a PPC will 
be imposed on a provider when the condition defined as a PPC for a 
particular patient existed prior to the initiation of treatment for 
that patient by that provider.'' This was implied in the previous 
language, but has now been made explicit. CMS agrees with the comment 
and is providing this clarification.
    CMS disagrees with the commenter's point that the expansion of 
State PPC policies beyond the hospital environment will limit access. 
We understand clearly that expansion beyond the hospital environment 
must be done in close consultation with affected providers and limited 
to situations where a provider could reasonably have prevented the PPC. 
However, from the perspective of the patient, it matters very little 
whether a wrong site surgery occurred in a hospital, an ambulatory 
surgery center, or in a minor surgery done in the physician's office. 
Moreover, as the commenter notes, States have already gone beyond the 
hospital setting in their individual PPC policies.
    Comment: One commenter requested that CMS provide States additional 
guidance on applying the Medicare HAC criteria to Medicaid providers 
and conditions. This commenter believed that we should partner with 
States to have continued dialogue on evidence-based guidelines.
    Response: As stated throughout the rule, we intend to continue 
dialogue with States and other Agencies related to this issue.
3. PPC Terminology
    Comment: A few commenters believed that the distinctions among the 
terms in the proposed rule were confusing and made it difficult to 
understand which term applied to which criteria.
    Response: We have revised the regulatory text to clarify that PPCs 
are clearly defined into two separate categories, HCACs (conditions 
identified as Medicare's HACs (with the exception of DVT/PE following 
total knee replacement or hip replacement in pediatric and obstetric 
patients) for IPPS purposes, applied broadly to Medicaid inpatient 
hospitals) and OPPCs (conditions applicable in any healthcare service 
setting minimally defined as Medicare's 3 NCDs).
    Comment: A few commenters objected to the use of the term PPC. One 
proposed the use of the alternative term ``Preventable Healthcare 
Related Conditions.'' The commenters noted that one proprietary 
organization is currently utilizing the acronym PPC for ``Potentially 
Preventable Conditions.''
    The commenters also questioned our use of the term other provider 
preventable condition and stated their biggest concern was with 
creating a new term that encompassed 3 NCDs so closely related with the 
NQF's ``Serious Reportable Events in Healthcare.'' The commenters 
recommended that CMS not create explicit category titles under the PPC 
umbrella term.
    Response: As stated in the preamble, the designation of these terms 
is necessary to a policy that meets statutory requirements in setting 
Medicare's policy as the minimum and allowing States the flexibility to 
expand beyond that minimum. We do not believe that the term PPC has 
been

[[Page 32824]]

narrowly defined across the industry to include a specific set of 
policy provisions as would be required by this final rule. In addition, 
we do not believe that the use of the PPC acronym will infringe on any 
proprietary organizations' ability to continue to use that acronym. We 
have not made any revisions to this final rule to reflect this comment.
    Comment: One commenter had questions regarding the definition of 
OPPC. The commenter questioned which evidence-based guidelines would be 
used and recommended that the regulation be expanded to include exact 
definitions of the guidelines.
    Response: It would be difficult to determine a singular set of 
guidelines to be identified for the various conditions that States may 
identify under these provisions. The rule provides States flexibility 
in determining the conditions identified for nonpayment under their 
individual State plans. As States submit plans for approval, we will 
evaluate the conditions proposed by States and determine their 
appropriateness for the Medicaid program. Additionally, we would remind 
commenters that the Secretary has the authority to revisit these 
provisions and may do so as this policy area develops. We reject the 
commenters recommendation and have made no changes to the final 
provisions regarding this issue.
    Comment: Many commenters recommended that more research be done by 
Medicare and Medicaid on applying PPC nonpayment policies to outpatient 
settings before conditions that occur in those settings are 
incorporated into PPC nonpayment policies or expanded. Some commenters 
objected to the designation of the 3 NCDs as a baseline for the 
Medicaid policy.
    Response: Medicare is conducting additional research to inform its 
policy on applying its HAC provisions beyond its IPPS hospitals. In 
preparing this regulation, CMS was required to consider existing State 
practices and determine whether, as a matter of policy, it was 
appropriate to include those established practices in these final 
regulations. We determined that, in some instances, States had 
implemented provisions that applied to providers in settings other than 
inpatient hospital settings, including outpatient hospital settings. We 
did not believe that it was prudent to require of all States what had 
been done in a few, but we wanted to provide States the flexibility to 
do so. Accordingly, we designed the PPC provisions to allow the 
expansion of State policies to other care settings, and other 
conditions. We agree that States should do additional research to 
evaluate the impact of applying nonpayment policies in outpatient 
settings before adopting such policies. It should also be noted that 
States with existing policies that do not meet the minimum provisions 
of this final rule and those without existing policies will need to 
submit for CMS approval SPAs implementing these policies.
    The three events that we are requiring that States include in their 
OPPC are those events which already trigger payment reductions in the 
Medicare program as national coverage determinations (NCDs). In the 
Medicare program, NCDs are already applied to all providers, not just 
to specified hospitals. Medicare NCDs are detailed, evidence-based 
determinations that are supported by substantial data. Therefore, 
inclusion of these three events merely replicates evidence-based 
determinations that are already in effect in the Medicare program.
    Comment: One commenter stated that the expansion of State PPC 
policies into non-inpatient settings will be extremely difficult to 
implement due to the very characteristics that are inherent to the 
outpatient setting, such as: The types of care and services provided; 
numerous providers and provider-types involved in care; periodic 
episodes of care provided by numerous providers over lengthy periods of 
time; and lack of systems and infrastructure to adequately coordinate 
care between visits and providers, among others. The wide variety of 
payment systems create enormous challenges for provider reporting, 
according to this commenter.
    Response: We are encouraging States to work with provider 
communities and other stakeholders to carefully examine nonpayment 
policies in non-inpatient settings. Additionally, we are requiring that 
States submit for approval Medicaid State plan amendments that would 
implement PPC nonpayment policies. To support these Medicaid State plan 
amendments, we are clarifying that the State must have made findings 
that the proposed PPC is reasonably preventable through the application 
of evidence-based guidelines. The SPA review process will give CMS and 
providers the opportunity to consider State policy before it is 
implemented and to provide guidance and input based on our knowledge of 
the issues.
4. POA and Coding Systems
    Comment: Several commenters objected to the burden of creating a 
POA system and the potential for variation in the different State PPC 
policies. Commenters are concerned that the POA requirement and its 
impact on reimbursement may result in extraneous testing, delayed care, 
and further access issues for Medicaid patients. In emergency 
situations, it is often impossible to provide optimal patient care and 
simultaneously determine POA status, it was noted. One commenter also 
noted that many hospitals were not familiar with the intricacies of POA 
coding and would require CMS guidance and time to implement it.
    Response: The POA system is not required by this final regulation, 
but obviously providers will need to carefully document the physical 
status of their patients on admission. That documentation is not simply 
done for legal purposes, but serves the legitimate medical purpose of 
allowing for careful evaluation the patient's condition prior to 
treatment and communicating that information to members of the 
treatment team. Ultimately, the provider will self-report PPCs to the 
State. The State may choose to verify this by a POA system or by other 
methods.
    Comment: One commenter disagreed that relying on record review with 
the ``Global Trigger Tool'' to detect what is present on admission will 
be effective in detecting POA. The commenter requested clarification on 
the method and asserted that it is not CMS's responsibility to 
determine POA retrospectively. The commenter opined that since CMS is 
not the patient's care provider, this would be bureaucratic over-reach 
into the patient-provider relationship.
    Response: We agree with the commenter that it is not CMS's 
responsibility to determine the POA status of a patient. The ``Global 
Trigger Tool'' is a tool by which providers would use a series of 
``triggers'' to determine the possible occurrence of an adverse event 
and indicate further review of a particular case. Neither the proposed 
rule, nor this final rule include any requirement that a provider 
implement the use of the ``Global Trigger Tool.'' We do suggest that 
our research indicates that this tool may be useful in identifying the 
occurrence of PPCs, as well as others like nursing reviews or 
concurrent utilization reviews.
    Comment: One State commented that the POA indicator is a very 
useful resource to identify the specific hospital where an adverse 
event occurred.
    Response: We thank the commenter for this information.
    Comment: One commenter was concerned with the use of the POA 
indicator being applied to pediatric populations because it may be hard 
to determine whether a child entered an emergency department with an

[[Page 32825]]

asymptomatic yet incubating infection. This commenter recommended a 
study be done to determine whether the incubation period in a child is 
different from an adult because the information would influence the 
determination of POA in certain cases.
    Response: The POA system is not required by this final regulation, 
but obviously providers will need to carefully document the physical 
status of their patients on admission. That documentation is not simply 
done for legal purposes, but serves the legitimate medical purpose of 
allowing for careful evaluation the patient's condition prior to 
treatment and communicating that information to members of the 
treatment team. Ultimately, the provider will self-report PPCs to the 
State. The State may choose to verify this by a POA system or by other 
methods.
    In regard to the study of the incubation period of infections in 
children versus adults, the purpose of this rule is to deny Medicaid 
payment for PPCs. States will be required to submit SPAs to implement 
these policies, however, aside from the minimum requirements in the 
rule States have flexibility in determining how to implement the 
related provisions, including the conditions identified for nonpayment. 
That being said, we recognize the inherent differences between the 
Medicare and Medicaid populations and would note that a major 
consideration for allowing States such flexibility in the OPPC category 
is the idea that States will be able to work with their provider 
communities and industry partners to further consider the unique 
situation of Medicaid beneficiaries within each State. We realize that 
for children's hospitals and pediatric populations there are a number 
of conditions that could be otherwise identified. We believe that 
States, working with their provider communities, are in a better 
position to develop additional conditions specific to their Medicaid 
populations and programs. We continue to believe that innovations 
should be shared across programs and States. As information becomes 
available, we will share implementation examples with States. We also 
encourage States to collaborate in this policy area.
    Comment: One commenter recommends that States consistently adopt 
the ICD-9-CM and ICD-10-CM codes as the only diagnostic standard for 
identifying conditions for purposes of Medicaid payment. According to 
this commenter, it would be administratively burdensome for providers, 
as well as result in lack of data comparability across Medicare and 
Medicaid programs, to allow Medicaid programs to use alternative coding 
systems or their own method for identifying each PPC.
    Response: We agree that the ICD-9-CM and ICD-10-CM codes present a 
reasonable alternative to developing and implementing unique diagnostic 
codes for the purposes of this provision. We encourage States to 
explore the use of the ICD-9-CM and ICD-10-CM codes for purposes of 
identifying PPCs under their existing programs.
    Comment: One commenter expressed concern over identifying 
additional costs associated with an adverse event that occurs in a same 
day surgery center, a skilled nursing facility or a clinic. The 
commenter reported that it would be very difficult to identify the 
clinic or facility as the cause of the adverse event because they are 
not reimbursed through a DRG payment system. The commenter notes that 
its claims system would not isolate claim lines related to the adverse 
event to distinguish them from appropriate services.
    Response: We appreciate the response. We understand the difficulty 
that States may face in applying this policy in settings other than 
inpatient hospital settings, but note that some States have managed to 
apply these policies quite broadly and successful quality outcomes have 
resulted. We encourage States to evaluate their populations and work 
with their provider communities to explore the possibilities of 
expanding PPC policies to non-inpatient hospital settings to support 
States efforts to improve the quality of care in their overall health 
systems.
    Comment: One State with hospitals exempt from Medicare IPPS payment 
under 1814(b)(3) of the Act noted that its existing PPC policy, which 
started in 2008, has resulted in a 12 percent decrease in measured 
hospital complication rates with associated cost reductions of $62 
million which were subsequently redistributed within hospitals in that 
State. The State praised CMS for allowing State flexibility in 
developing PPC policy and outlined planned State initiatives in 
reducing preventable readmissions. This State also noted that since its 
policy is considerably expansive, it should be exempted from this final 
rule.
    Response: We do not have legal authority to exempt any State from 
the statutorily required provisions. We disagree with the suggestion 
that a States existing policy should exempt a State from the 
requirements of this final rule. The provisions of the final rule are 
drafted to allow States flexibility in developing individual PPC 
policies, while adhering to the minimum requirements set forth. While 
we appreciate the innovative nature of State programs, we believe that 
it is necessary for all States to appropriately amend their Medicaid 
State plans to comply with Federal law. This will also enable other 
States to learn and be better informed.
    We also believe that this comment illustrates the value of the 
Federal-State partnership in Medicaid. Many of the ideas used in this 
regulation were originally developed by State Medicaid programs 
interested in improving the quality of care received by their Medicaid 
beneficiaries. States, like other stakeholders in the Medicaid system, 
share a common interest in the development of safe, efficient Medicaid 
systems which serve their beneficiaries. A common goal for CMS, States, 
providers and patients is the pursuit of better outcomes for 
individuals and populations, while reducing unsustainable costs through 
improved quality of care. The pursuit of this common goal strengthens 
not only Medicaid, but the entire American health care system.
    Comment: Some commenters were strongly supportive of the approach 
taken by the proposed regulation. The commenters endorsed the use of 
the Medicare HAC as Medicaid HCAC and the provision of flexibility to 
States through the SPA process. In particular, one group favored the 
preservation of State ability to define PPC which occurred outside of 
hospitals and the three federally required OPPC. This commenter 
stressed the value of required State reporting systems and suggested 
public posting of such data after appropriate risk-adjustment and data 
validation. The comment also noted the importance of CMS monitoring to 
assure that the PPC policy had no adverse effects on beneficiary access 
to care.
    Response: We appreciate the commenters' support. We will monitor 
the implementation of the final rule to assure that beneficiary access 
to care is not impaired.
5. General Comments
    Comment: One commenter believes that the proposed rule is 
inconsistent because it states that hospitals will need additional 
infection control staff to prevent or reduce PPCs and that hospitals 
already have programs in place. The commenter also asks for 
clarification on whether the implementation cost estimates are academic 
or provided by hospitals.
    Response: The commenter is taking these two points out of context. 
In the

[[Page 32826]]

preamble to the proposed rule in discussing options considered for 
reporting requirements we say, ``We considered requiring reporting to 
Hospital Compare and the National Health Safety Network, but decided 
against these formats because: We do not believe they currently have 
the capacity to allow State specific reporting of varied measures; 
their existing collections may not be consistent with what most States 
are currently requiring providers report; and the reporting formats may 
impose undue significant burden for providers--particularly those that 
do not have full-time quality staffs or resources.'' Later in the 
proposed rule where we discuss the regulatory impact analysis we state, 
``The Joint Commission requires hospitals to have established programs 
for Quality Improvement, Risk Management, Safety, and Infection 
Control. As a result, a majority of hospitals already have in place 
programs to avert Medicare HACs and thus would not incur new costs to 
implement parallel programs to avert Medicaid HACs.'' There are 
hospitals that have existing programs. There are also hospitals that 
will need to use additional resources to meet State requirements. This 
will be determined by each individual hospital depending upon its 
existing resources. The estimates are based on our experience with the 
implementation of like provisions through the SPA process, as well as 
Medicare's experience implementing its HAC policy.
    Comment: Commenters were concerned that States would be too 
expansive in defining outpatient PPCs and noted that, in the outpatient 
area, there is limited provider control and patient compliance issues 
are essential.
    Another commenter expressed concern that the provisions would allow 
States to identify conditions not based on accepted medical standards. 
It noted that, in its State, the automated Medicaid claims system used 
by Medicaid health plans had limited ability to report out or adjust 
for PPCs. The commenter was critical of the short timeline for 
compliance and expressed concern that, in the dual eligible category, 
there was a possibility of double payment reduction.
    Response: We note that an OPPC must be supported by a finding by 
the State that it ``could have reasonably been prevented through the 
application of evidence-based guidelines.'' To address this comment, we 
have strengthened this language to require that the finding be based on 
a review of medical literature by qualified professionals. As a result, 
States PPCs will not be able to identify a PPC without a strong basis 
to do so, and we do not anticipate great variation between States over 
time.
    We are requiring that the providers self-report PPCs, at which time 
the health plan or State can, upon receipt of the self-report, make an 
appropriate payment correction. We believe that, once providers have 
put in place systems to track and report PPCs, they will be able to use 
this information to reasonably reduce the incidence of these defined 
events in their facilities. For dual eligibles, the intent of this rule 
is that no payment would be available under either Medicare's IPPS or 
Medicaid for an identified HAC. We do not view this as a ``double 
payment reduction'' but as a consistent nonpayment policy. State 
Medicaid agencies have repeatedly expressed to CMS their concern that, 
with dual eligibles, the impact of a Medicare HAC denial was often that 
the provider would simply bill Medicaid as a secondary payer. This 
would result in no denial of payment even when a Medicare HAC occurred. 
Indeed, that complaint from State Medicaid agencies is one of the 
reasons that, in this regulation, we are attempting to coordinate 
Medicare and Medicaid policies.
    Comment: Several commenters suggested that we develop a set of 
standard definitions that account for provider setting and other 
evidence-based factors that can be applied across health care settings 
and across State lines. Some also suggested that we remove the option 
providing States the ability to include any HCACs or OPPCs beyond those 
required by Medicare to encourage State-to-State uniformity.
    Response: Medicaid is a State-administered program. By setting 
Medicare's hospital IPPS HAC policy as the base policy, we are 
encouraging uniformity across the two programs while simultaneously 
allowing States to retain the flexibility that is statutorily-afforded 
to them under title XIX of the Act.
    Comment: One commenter questioned what would prevent hospitals from 
spreading the cost of nonpayment for PPCs out among all health care 
consumers. The commenter suggested that CMS institute an incentive 
system by implementing a pre-paid provider incentive pool rather than a 
nonpayment system.
    Response: The purpose of this regulation is to establish rules that 
would prevent Medicaid from paying for HCACs resulting from provider 
error and to encourage quality-based reimbursement. Hospitals will 
continue to be paid for the services provided. If a patient enters the 
facility for a surgical procedure and in the process of that procedure 
a HCAC occurs, the hospital will receive payment for the initial 
surgical procedure but will not receive payment for services provided 
in addressing the HCAC. That being said, this final rule sets out broad 
parameters for allowing States to design PPC policies that complement 
their current systems. If a State is able to develop a system that 
complies with the requirements of this final rule through an incentive 
based program, we welcome the opportunity to review it as part of a SPA 
and share it with other States as appropriate.
    Comment: Some commenters asked CMS to provide in the final rules 
specific guidance to States regarding the inclusion of additional 
preventable conditions; for example, issue specific, evidence-based 
parameters for defining ``preventable'' with consideration for issues 
like patient noncompliance. Other commenters provided specific 
conditions that they did not believe States should identify for 
nonpayment in their PPC policies. The commenters had various reasons 
for objecting to States' inclusion of these conditions based on patient 
population, facility type, and administrative burden.
    Response: The final rule does not require that States include other 
provider preventable conditions, but provides States with the option to 
do so. By allowing States to develop these programs through State plan 
amendments with the participation of the provider community, we believe 
that concerns such as this will be addressed at the State level.
    Comment: One commenter highlights the fact the PPCs program's 
impact on States includes the administrative and financial burden of 
building and maintaining data collection systems, not to mention the 
reality that State Medicaid programs are run by public administrators 
who may not have training or experience in clinical issues, comparative 
effectiveness research, and other factors that are critical when making 
payment restriction decisions.
    Response: We agree that States may need to employ additional 
resources to implement a PPC policy, just as with any other payment 
policy implemented by States. The minimum requirements under this final 
rule are designed to minimize the administrative burden on all 
stakeholders. The PPC policy is designed to use existing data systems 
to identify conditions as they occur. We encourage States and providers 
to work together to craft comprehensive PPC nonpayment and reporting 
policies that are reasonable and effective.

[[Page 32827]]

    Comment: One commenter noted that payment reductions for those 
hospitals that have a high burden of Medicaid and Medicare patients 
will challenge their ability to stay open at current capacity if they 
suffer significant payment reductions due to the new rule. Critical 
access hospitals may be the most vulnerable due to the lack of 
infrastructure to analyze their own data and develop corrective actions 
prior to the actual payment reductions, according to the commenter.
    Response: Hospitals will continue to be paid for the provision of 
high quality care under the final rule. The Affordable Care Act 
requires that HACs identified under Medicare IPPS rules are applicable 
to all entities that operate as Medicaid inpatient hospitals. We do not 
have the authority to exempt any Medicaid inpatient hospital providers 
from these requirements.
    Comment: One commenter noted that under Medicare, the cost savings 
seems relatively low as it pertains to all of the HACs, which is the 
baseline for this policy under Medicaid. According to this commenter, 
there is very little data to suggest that the savings under Medicaid 
would be greater even if the OPPCs are included. The commenter 
recommend that CMS take a slower approach to broadening the HCAC policy 
by expanding from the Medicare HACs over a longer period of time to 
evaluate the savings from nonpayment for HCACs under the Medicaid 
program.
    Response: The purpose of this regulation is to drive quality care, 
it is not a cost savings exercise. We recognize there may be some cost 
savings and that it may take some time to realize the full extent of 
the cost savings, but this measure is important for the long-term 
benefit of the Medicaid program, Medicaid beneficiaries, and the health 
care industry as a whole. We intend for these provisions to be a 
catalyst for change where the infrastructure for quality measurement, 
as well as the methods for improvement that should be built into our 
system, are not currently in place.
    Comment: One commenter wrote to share its success in quality 
improvement within a particular State. The commenter reported various 
collaborations that it has undertaken with its State and other 
stakeholder organizations resulting in delivery system innovations have 
proven valuable and efficient.
    Response: We appreciate this comment and commend the commenter for 
taking the necessary steps to improve care to its beneficiaries. We 
encourage other States and organizations to innovate in the same way.
    Comment: One commenter recommended that national clinical consensus 
should be a component of the criterion as to whether a condition is 
``reasonably preventable.''
    Response: We agree that a finding as to whether a condition is 
``reasonably preventable.'' must be based on a solid basis in national 
medical literature, as determined by qualified professionals. 
Therefore, we are retaining and strengthening the portion of the OPPC 
definition from the proposed rule that requires that conditions 
identified by States must be supported by a finding that the 
conditions, ``could have reasonably been prevented through evidence-
based guidelines.'' We are adding that this State finding must be based 
upon a review of medical literature by qualified professionals. We 
believe that this stronger language will ensure a level of integrity 
and consistency in these determinations.
    Comment: One commenter believed that Medicare has determined and 
will continue to determine, with the help of evidence-based guidelines, 
what is reasonably preventable and what are ``never events,'' and that 
this should be the standard across all regions of the country because 
there would not be any benefit to the population of beneficiaries for 
one state to have different quality health standards including for 
payment consideration.
    Response: The work that Medicare has done in the process of 
developing its IPPS HAC policy is valuable and consistent. Adopting 
this work on a national level will benefit States and beneficiaries. 
This is part of the reason the final regulation incorporates conditions 
identified as Medicare's HACs, with the exception of DVT/PE as related 
to total knee replacement and total hip replacement for pediatric and 
obstetric populations, and 3 NCDs as the foundation of the Medicaid 
policy to be applied in States.
    Comment: One commenter believed, in regard to flexibility as to the 
grouper that each State selects to use to process HCAC, that to achieve 
consistency there needs to be limits placed on the choice. Also, States 
need to be using the current HIPAA administrative code set versions 
that Medicare uses. This commenter also supported the standardization 
of public domain groupers to help reduce the cost to healthcare 
providers and States.
    Response: States have great flexibility in designing their own 
payment systems and working with their provider communities in 
determining how best to implement these provisions. We do not intend to 
restrict that flexibility with this final rule. We note that not all 
States reimburse providers using grouper methodologies. In regard to 
the adoption of the standardization of public domain groupers, we 
appreciate this comment, but it is outside the scope of this rule.
    Comment: Many commenters recommended that we revise Medicare's HAC 
list to include or eliminate various conditions.
    Response: We thank the commenters for their input. However, 
revisions to Medicare's IPPS HAC list are outside the scope of this 
rule.
    Comment: Some commenters wrote requesting clarification of or on 
the application of Medicare's HAC list.
    Response: The commenters' requests are outside the scope of this 
rule. We refer the commenter to the Medicare HAC page located at http://www.cms.gov/HospitalAcqCond/02_Statute_Regulations_Program_Instructions.asp#TopOfPage.
6. State Plan Amendments
    Comment: One State noted that the preamble (see 76 FR 9289) 
proposes that States would be required to amend their Medicaid State 
plans to match any changes to Medicare's final IPPS rule that Medicare 
publishes 60 days prior to the beginning of the next Federal fiscal 
year. The State commented that 60 days does not allow enough time to 
identify ways to capture the data and program and test changes to the 
payment system. The State suggested that CMS clarify that a State could 
comply by the submission of a State plan amendment by the end of the 
Federal quarter in which the change takes effect, that is, by the end 
of the first quarter of the next Federal fiscal year.
    Response: The Medicaid SPA process requires that States submit 
amendments to their Medicaid plans no later than the last day of the 
quarter in which the amendment would take effect. We have developed a 
State plan preprint that outlines the minimum provisions of this final 
rule and allows States the flexibility to identify OPPCs for nonpayment 
in their Medicaid State plans. States will define the related payment 
methodologies within the appropriate sections of their Medicaid State 
plans.
7. Reporting Requirements
    Comment: One commenter recommended that reporting requirements be 
included in States' provider policies and included in provider 
contracts.
    Response: As discussed in the proposed rule, a reporting component 
is

[[Page 32828]]

essential to building an effective PPCs policy for a number of reasons, 
including State and CMS ability to capture data related to these 
occurrences. We believe that States will need to work with their 
provider communities to implement an appropriate reporting system.
    Comment: One commenter supports the requirement that existing 
claims systems be used as a platform for provider self-reporting 
because it is essential that their nonpayment policies are based on 
data provided through their claims systems.
    Response: We thank the commenter for support on this issue.
    Comment: One commenter remarked that provider self-reporting 
procedures should require providers to report conditions identified for 
nonpayment when they occur, regardless of the provider's intention to 
bill. Hospitals and providers have a clear incentive not to report 
quality errors beyond nonpayment provisions, according to the 
commenter. CMS must take a strong stance against underreporting and 
apply strict penalties. Another commenter requested that CMS clarify 
that States would be required to submit provider self-reporting data to 
CMS.
    Response: In Medicaid, States are given a large degree of 
flexibility under title XIX of the Act. As such, providers submit 
Medicaid claims to States and not CMS. While we are requiring that 
States implement self-reporting requirements, States have the ability 
under the statute to determine how they will implement these 
requirements with input from the provider communities. Once data is 
collected at the State level, States will submit that data to CMS as 
part of their standard procedure for collecting and sharing Medicaid 
provider claims data.
    Comment: Several commenters supported provisions in the proposed 
rule that would require States to implement provider self-reporting 
requirements through the claims submission processes.
    Response: We agree and have retained these provisions in the final 
rule.
    Comment: A few commenters believe that providers will be over 
burdened with the reporting requirements under this new regulation. 
Additionally, they disagreed with how long it would take States to 
develop and implement reporting requirements.
    Response: The provisions of this final rule require reporting 
through State claims systems because they are existing resources that 
are routinely and regularly modified to accept State payment 
adjustments for other provisions. Most providers subject to the minimum 
requirements of the final provisions will be familiar with when and how 
to report these conditions. In States with existing policies, there are 
already these types of reporting requirements for payment purposes. 
And, States electing to go beyond the minimum requirements of these 
provisions will need to work with their provider communities to ensure 
that all aspects of the provisions can be sufficiently implemented. 
Provider reporting is necessary to ensure that the payment preclusion 
is effective in eliminating PPCs, or determine whether additional 
measures may be required, or whether the measures applied are 
necessary.
    Comment: One commenter requested clarification on the purpose of 
provider reporting and how CMS expects States to use reported 
information. Another commenter noted that there is no clear provision 
on how States are to report this data to CMS. One State asks whether 
the SPA will have to specify how the reporting will be done, or if 
States will need to assure that they will comply with the requirement.
    Response: We are requiring that States impose provider self-
reporting through claims systems because that information will be used 
to determine when a PPC occurred and trigger State payment action. The 
data will also be fed by States to CMS. CMS and States will use this 
data to inform policy making.
    Comment: One commenter noted that the proposed rule requires States 
to establish a provider reporting requirement for PPCs. The commenter 
asked what the parameters will be for those guidelines and how much 
latitude CMS will give to the States.
    Response: As a requirement of the final rule, States will implement 
the provider self-reporting through payment claims systems regardless 
of the provider's intention to bill. We are working to ensure that 
States consistently report at least the minimum requirements of the 
rule through the Medicaid Management Information Systems (MMIS). We 
anticipate that States and providers, especially those groups of 
providers that have not been subject to Medicare's HAC policy, will 
need to work cooperatively to develop and implement reporting systems 
that would complement existing payment structures. As discussed in the 
proposed rule, a reporting component is essential to building an 
effective PPCs policy for a number of reasons, including State and CMS 
ability to capture data related to these occurrences.
8. Medicare and Medicaid Dual Eligibles
    Comment: One commenter supports nonpayment for all PPCs as they 
pertain to the dual eligible population. This commenter urges CMS to 
codify provisions that prohibit Medicaid claim payment for claims that 
have been denied by Medicare based on the presence of a HAC.
    Response: We agree. This is a significant area of concern, and we 
have revised the final regulation to reflect that no FFP is available 
for a Medicare denied claim based on the presence of a HAC, ``A State 
plan must provide that no medical assistance will be paid for 
`provider-preventable conditions' as defined in this section; and as 
applicable for individuals dually eligible for both the Medicare and 
Medicaid programs.''
    Comment: Some commenters requested clarification on how these 
provisions would apply to Medicare cross over claims. Commenters wanted 
clarification on how to determine that Medicare has rejected a HAC 
claim for an individual dually eligible for Medicare and Medicaid.
    Response: We agree that the proposed provisions lacked clarity in 
the application to individuals dually eligible for Medicare and 
Medicaid. We have revised the final rule to provide clarification. 
States may determine that Medicare has reduced payment based on the 
provisions of its HAC policy by working with their Medicare Fiscal 
Intermediary to identify the appropriate codes related to treatment for 
dually eligible individuals. Reference materials regarding POA coding 
for Medicare HACs may be found at https://www.cms.gov/HospitalAcqCond/05_Coding.asp#TopOfPage
    To support State efforts, we will work with the Federal Coordinated 
Health Care Office to provide guidance on this issue.
9. Managed Care
    Comment: One commenter wrote in support of the provision requiring 
States to modify their managed care contracts to reflect the PPCs 
payment adjustment.
    Response: We agree and are retaining requirements that States 
include PPC payment restrictions in managed care contracts. All 
providers should be held to these quality standards and the final rule 
retains these requirements.
    Comment: One commenter requested clarification of the expectation 
for MCOs to refund money derived from the nonpayment of PPCs back to 
States.
    Response: We anticipate that savings gained from the application of 
State PPC policies to their managed care providers

[[Page 32829]]

will, ultimately, be factored into the individual contract rates 
established with those providers.
    Comment: One commenter requested clarification that the amendments 
to Sec.  434.6 do not apply to MCOs, and further, that the MCO 
contracts with providers will not have to require providers to report 
PPCs associated with claims to the MCOs.
    Response: On its own, the provisions of Sec.  434.6 do not apply to 
MCOs; however, by cross-reference, we are applying the specific 
provision in Sec.  434.6(a)(12) regarding PPCs to MCO contracts. We do 
intend that MCO contracts with providers, identical to Medicaid State 
agency's contracts with providers, require those providers to report 
PPCs associated with claims to the MCO. Further, so that the Medicaid 
State agency will be able to quantify and report, if necessary, 
information on all PPCs in the Medicaid program, we expect that MCOs 
will track PPC data and make it available to the State upon request. 
Accordingly, we are modifying the proposed Sec.  438.6 to clarify both 
intentions.
    Comment: A few commenters requested that CMS provide guidance for 
States on how to apply the nonpayment requirement for HCACs to 
capitation payments, specifically those under Sec.  438.6. 
Additionally, the commenters requested information on how these 
policies would apply to the development of actuarially sound rates.
    Response: We believe that the implementation of State PPCs policies 
will be consistent with what we anticipate in the fee-for-service 
setting and have only minimal impact on provider payment and therefore 
the development of actuarially sound rates. However, as the MCOs spend 
less money on services, that decrease will be reported to the State 
which will in future rate-setting reflect the reduced expenditures in 
the rate setting. States will need to work with their MCOs to develop 
appropriate policies within their contracts.
    Comment: One commenter recommended that CMS reinforce the 
importance of State compliance with the requirement that Medicaid 
managed care rate setting must be actuarially sound.
    Response: The requirements of this final rule do not in any way 
preempt regulatory provisions otherwise in effect. We urge States to 
work with all of their provider communities to determine the best ways 
in which to implement related nonpayment policies.
10. Comment Period
    Comment: A few commenters objected to the 30-day comment period. 
One commenter proposed that CMS issue a final rule with comment period 
to accept additional public comment and to provide additional time for 
States to articulate how they might comply with the regulations.
    Response: This rule does not present a high level of complexity and 
we believe that the 30-day comment period provided commenters 
sufficient time to fully evaluate the proposed rule and submit comments 
to CMS. The 30-day comment period is consistent with the requirements 
of the Administrative Procedure Act codified at 5 U.S.C. 553, and a 
longer period is not warranted in light of the significant beneficiary 
protection that this rule would implement. For the same reasons, we do 
not agree that issuing a final rule with comment period is necessary.

B. Access to Care

    Section 2702(a) of the Affordable Care Act requires that the 
Secretary ensure that adjustments to payment rates under this section 
do not result in a loss of access to care for beneficiaries. To this 
end, we proposed that any reduction in payment would be limited to the 
amounts directly identifiable as related to the PPC and the resulting 
treatment.
    We received the following comments in response to our proposals 
concerning access to care.
    Comment: One commenter stated that hospitals should not be 
penalized multiple times for the same occurrence.
    Response: We agree and urge provider communities to engage States 
to ensure that methodologies implemented do not unduly impact 
providers.
    Comment: Several commenters requested that we include a provider 
appeals process in these provisions. The commenters noted that the 
nature of identified conditions and the variation in State payment 
policies warranted the inclusion.
    Response: Existing State appeal processes may be available for a 
provider to contest whether a State has improperly identified the 
occurrence of a condition identified as a PPC. We encourage States to 
develop appeals processes that will allow providers to object to any 
payment reduction when the provider can show that an identified PPC 
occurred despite all appropriate precaution.
    Comment: Some commenters opined that allowing States any 
flexibility in defining PPC through the OPPC category would be an undue 
burden on providers who operate on a multistate basis.
    Response: The underlying authority for this rule is found in 
provisions of title XIX of the Act that predated section 2702 of the 
Affordable Care Act. The proposed rule was supported by our existing 
authority under sections 1102, 1902(a)(19), and 1902(a)(30) of the Act. 
Providers that operate on a multistate basis must comply with the laws 
and rules of each State in which they operate. We see no compelling 
reason to limit State flexibility to identify PPC nonpayment rules to 
ensure high quality services for beneficiaries.
    Comment: One commenter opposed the idea of States being allowed to 
define potential PPC and opined that this task was better left to 
national quality organizations such as NQF or IOM. While expressing 
support for the general concept of evidence-based quality standards, 
the commenter believed that it was important that these standards be 
national in scope and that the use of State Medicaid payment systems 
was not the appropriate vehicle for improvement of health care quality.
    Response: The Medicaid program, by its very nature, is a 
partnership between the Federal and State governments, and is 
administered by States. While we are requiring that States rely on a 
review of medical literature by qualified professionals to identify 
evidence-based PPCs, we believe it is essential to allow States 
flexibility to develop payment strategies that provide strong 
incentives for high quality services.
    Comment: Several commenters recommended that we limit State ability 
to create PPCs to only those which strictly met the Medicare criteria 
in section 1886 (d)(4)(D)(iv) of the Act.
    Response: Section 2702 of the Affordable Care Act requires that the 
Secretary by rulemaking, establish a nonpayment policy for HCACs, the 
underlying authority for this rule is found in provisions of title XIX 
of the Act. The proposed rule was supported by our existing authority 
under sections 1102, 1902(a)(19), and 1902(a)(30) of the Act and 
States, using this authority, have already undertaken payment policies 
to drive quality outcomes. We see no compelling reason to limit State 
flexibility to identify PPC nonpayment rules to ensure high quality 
services for beneficiaries.
    Comment: One commenter was supportive of the proposed regulation 
and of the addition of non-hospital providers through the OPPC 
category. The commenter suggested careful CMS scrutiny of proposed 
State PPC SPAs to assure no adverse impact on beneficiary access to 
care, the addition of a risk-adjustment mechanism to the regulation, 
careful monitoring to assure

[[Page 32830]]

that no access problems develop, and some mechanism to publicly report 
provider outcomes. The Maryland Medicaid model for PPC payment and 
reporting was offered as an exemplary model for national use.
    Response: We reviewed the Maryland system in developing this 
regulation and, found it to be a useful State model that combined both 
financial incentives with overall quality improvement efforts. CMS will 
review State preprints, reimbursement State plan amendments, and 
supplementary information to determine final action on State PPC 
policies.
    Comment: Some commenters expressed concern that the proposed 
regulation allowed too much discretion to individual States to use the 
SPA process to affect payment in areas where no national consensus 
about appropriate care existed.
    Response: We are strongly committed to permitting State flexibility 
to innovate in this area. State innovation has been a significant 
driver of Federal policy, and States have direct experience with 
utilization and claims review for Medicaid services. While we 
anticipate that States will review data to identify evidence-based 
PPCs, we believe it is essential to allow States flexibility to develop 
payment strategies that provide strong incentives for high quality 
services.
    The SPA review process will give CMS and providers the opportunity 
to consider State policy before it is implemented and to provide 
guidance and input based on our knowledge of the issues.
    Comment: Several commenters expressed concern that the language of 
the proposed regulation allowed States excessive authority to use the 
PPC process to further reduce Medicaid compensation during a period 
when States are already under financial pressure to reduce Medicaid 
costs. One commenter suggested numerous additional limitations of State 
use of the PPC process be added to the final regulation.
    Response: This final rule provides for nonpayment to the extent 
that an identified PPC would otherwise result in an increase in payment 
for additional services, and permits States to identify PPCs in 
addition to the core PPCs that are based on Medicare. This is 
consistent with the considerable flexibility that States have in 
setting payment rates and methodologies. States will need to file SPAs 
with CMS outlining the State's proposed nonpayment methodology, and 
their approach to inclusion of Federal minimum standards, as well as 
any additional variations proposed by the State. The SPA process will 
allow the State's providers to file public comments on any proposed 
State changes.
    Comment: Several commenters expressed concern over how the 
nonpayment policy would be implemented in States that do not use MS-DRG 
reimbursement systems. A few commenters requested that States that have 
elected to use per-diem, global payment, bundled payment or other non-
MS-DRG systems to reimburse hospitals be allowed to continue to do so, 
and not be forced to move to MS-DRG.
    Commenters were concerned that these States will need to identify 
methods appropriate to their reimbursement mechanisms to make payment 
reductions for PPCs and that resource-intensive post payment audits and 
payment adjustments are likely to be necessary. These commenters noted 
that they are encouraged by our attempt to provide flexibility to 
States, but requested that we issue guidance that includes best 
practice recommendations for developing efficient payment adjustments 
where reimbursement is not based on an MS-DRG system. Another commenter 
requested that we provide options for how States may identify or 
estimate the cost of services on a systematic basis without a case by 
case review. One commenter requested that we develop a crosswalk of 
HCAC conditions to non-DRG payment methodologies to assure consistency 
in reporting from States back to CMS. The commenter remarks that 
encouraging States and MCOs to create their own crosswalks will be 
counter-productive.
    Response: CMS recognizes that many States do not use MS-DRG to 
reimburse hospital providers. As stated in the NPRM, we have no 
intention of requiring States to alter their current compensation 
systems to comply with this final regulation beyond the necessary 
adjustments needed to implement the PPCs non-payment provisions. This 
intention continues through the final rule.
    States have flexibility to design their own payment systems within 
the guidelines of Federal regulations. The final rule allows States the 
flexibility to implement nonpayment policies through various 
mechanisms, but requires that States submit Medicaid SPAs setting forth 
their mechanism to comply with the required nonpayment for PPCs, with 
public notice for CMS approval. States will need to work with their 
provider communities, industry partners, and CMS to determine the most 
effective manner in which to implement these nonpayment provisions. As 
we noted in the preamble to the proposed rule, we intend to continue to 
gather and share information related to States' implementation of PPCs 
nonpayment policies. However, we do not intend to endorse any 
particular best practices.
    We do not wish to limit State flexibility by dictating methods in 
which PPCs should be translated or ``cross walked'' to individual State 
payment systems. However, we do agree that there is a need for as much 
consistency as possible in reporting from States to CMS. As a 
requirement of the final rule, States will implement the provider self-
reporting through payment claims systems regardless of the provider's 
intention to bill. We are working to ensure that States consistently 
report at least the minimum requirements of the rule through the 
Medicaid Management Information Systems (MMIS). We anticipate that 
States and providers, especially those groups of providers that have 
not been subject to Medicare's HAC policy, will need additional time to 
develop and implement reporting systems that would complement existing 
payment structures. As discussed in the proposed rule, a reporting 
component is essential to building an effective PPC policy for a number 
of reasons, including State and CMS ability to capture data related to 
these occurrences.
    Comment: A few commenters believed that it is unjust to penalize 
providers for complications that occur despite best evidence-based 
efforts to eliminate or avoid them. Commenters noted that some 
conditions have more to do with patient risk factors or patient 
compliance than with quality of care. Another commenter stated that not 
covering these conditions would encourage denial of care to high risk 
patient or a mass exodus of providers. Several commenters suggested 
that appeals processes be included in State Medicaid PPCs provisions 
that would allow providers to challenge payment denials.
    Response: We agree that not all of the identified events will be 
avoidable in 100 percent of the cases even with appropriate 
precautions. But current Medicaid payment systems are designed to 
provide incentives to providers to efficiently provide high quality 
care and result in an aggregate payment that may be more or less than 
actual costs in a particular case. For example, payment is often based 
on a fee schedule or diagnosis related group methodology that considers 
average or target costs of the particular service or services and may 
differ from actual costs in a

[[Page 32831]]

particular case. Even ``reasonable cost'' rates do not necessarily 
include all costs a provider may incur. It is important to remember 
that the identified conditions have been determined through evidence-
based medicine to be provider preventable. For the issue of appeal 
rights, existing State appeal processes may be available for a provider 
to contest whether a State has improperly identified the occurrence of 
a condition identified as a PPC. We encourage States to develop appeals 
processes that will allow providers to object to any payment reduction 
when the provider can show that an identified PPC occurred despite all 
appropriate precaution.
    Comment: One commenter suggested, as an example, that we consider 
permitting Medicaid coordinated care plans to adopt inpatient 
concurrent review as a practice for addressing PPCs. The commenter 
noted that, ``most Medicaid coordinated care plans utilize inpatient 
concurrent review as a unique reimbursement practice for addressing 
PPCs. Most Medicaid coordinated care plans utilize inpatient concurrent 
review to identify hospital days that are not medically necessary or 
represent delays in care. These days are generally not eligible for 
reimbursement in a non-DRG/per-diem environment. Expanding the 
concurrent review process to include identification of hospital days 
required solely for the treatment of PPCs would be one way to address 
this issue.''
    Response: This is one example of how States may be able to identify 
amounts related to the treatment of PPCs. The final rule indicates that 
States may reduce payments to providers when the PPC would otherwise 
result in an increase in payment. The rule also requires that the State 
be able to reasonably isolate for nonpayment the portion of payment 
directly related to treatment for, and related to, the PPC. The rule 
does not limit State flexibility in accomplishing these requirements.
    Comment: One commenter asked that we clarify that it recognizes 
that different reimbursement methodologies may result in no reduction 
or different reductions than the reductions under MS-DRGs. Another 
commenter asked that we confirm that, ``if on the same inpatient 
hospital day, both services associated with a PPC and services not 
associated with a PPC are rendered and if payment is made on a per diem 
basis such that the presence of the PPC services would not result in an 
increased per diem payment even without this proposed regulation, then 
no adjustment to the payment for that day is necessary.''
    Response: We agree that given the variations in Medicaid payment 
methodologies and systems across States, there may be differences in 
amounts identified for nonpayment based on the payment system employed 
by the individual State. And there is no requirement that State 
Medicaid payment adjustments to providers correlate specifically to 
Medicare's payment adjustments for those same conditions. Payment 
methodologies are extremely complex, and we do not believe it is 
productive to address broad hypothetical scenarios regarding 
implementation of nonpayment policies. We intend to work with each 
State to develop implementation strategies that make sense with its 
particular payment methodologies.
    Comment: Some commenters recommended that risk-adjustment be 
incorporated into PPCs policies.
    Response: These comments appear to refer to payment methodologies 
that provide for case-mix adjustments to give higher payments to 
providers that treat sicker populations, to reflect the higher cost of 
treating such populations. Such methodologies are not related to the 
policies relating to PPCs that are reflected in this rule, and to 
combine the two would significantly weaken the incentives for providers 
to institute preventive measures to eliminate PPCs. We note that we 
strongly support the incorporation of risk-adjustment in State Medicaid 
programs, which States can elect under current law. We are urging 
provider communities to continue to work with States to develop 
successful risk-adjustment approaches on the State level.
    Comment: One commenter suggested that hospitals which serve 
Medicare and Medicaid beneficiaries will decrease in quality as a 
result of the proposed policy because the fixed costs associated with 
providing medical services will become variable, and instead of 
absorbing the loss, investors will simply reduce capital investments. 
The commenter offers that one solution to this possible undesired 
consequence is to have the Medicaid and Medicare programs absorb such 
costs, albeit not through direct payments. Instead, the commenter 
suggested CMS could pay a flat rate at the beginning of the year 
covering all PPCs and require them to be fully serviced without charge. 
This way, they will still have the incentive to reduce HCACs but will 
not have to bear the costs.
    Response: The policy set forth in this rule is designed to improve 
quality of services by providing a strong incentive for providers to 
take steps eliminate the incidence of preventable conditions. A 
provider that does so will suffer no economic loss. In contrast, the 
flat rate payment approach proposed by the commenter would lock in a 
tolerance level for such conditions, instead of eliminating them, and 
would send a mixed message to providers about whether providers must 
take steps to eliminate preventable conditions.

C. Effective Date of the Final Provisions

    Consistent with the provisions of section 2702(a) of the Affordable 
Care Act, we proposed to make these requirements effective July 1, 
2011. In the proposed rule, we requested that States submit conforming 
SPAs to implement these provisions prior to that date. To be in 
compliance with the July 1, 2011 effective date, under Sec.  430.20, we 
proposed that the last date a SPA may be submitted is September 30, 
2011, which is the last day of the quarter in which the amendment would 
be effective.
    We received the following comments in response to our proposals 
concerning the effective date.
    Comment: Several commenters expressed concern that the July 1, 2011 
effective date of the rule does not leave sufficient time for 
discussion of policy, implementation of required hospital changes, and 
development of the appropriate systems for reporting. Additionally, 
commenters suggested that States be permitted up to 60 days to 
incorporate Medicare HACs as Medicare updates its list.
    Response: We are statutorily-required to implement these 
regulations effective July 1, 2011. We do believe, however, that States 
may need additional time to work with providers to implement sound 
policies and reporting mechanisms. We intend to delay compliance action 
on these provisions until July 1, 2012.
    We disagree that this final rule should provide States up to 60 
days to incorporate additional Medicare HACs as Medicare's list 
changes. The publication of Medicare's final IPPS rule is consistent 
and published in ample time to allow States to incorporate HAC changes. 
The Medicaid SPA process allows States sufficient time to propose and 
incorporate any changes that Medicare may make to its HAC list 
considering the timeframe in which Medicare publishes its final rule.
    Comment: One commenter recommended that CMS not penalize States 
that are not prepared to implement the proposed Medicaid nonpayment 
policy or any future updates in a timely manner due to a vender not 
modifying necessary software in a timely manner.

[[Page 32832]]

    Response: States have great flexibility in administering their 
programs. We urge States to work with their provider communities and 
vendors to ensure that they meet the provisions of these rules in a 
timely fashion.

D. Specific Revisions to Regulations Text

    The provisions of the proposed rule would deny FFP for Medicaid 
expenditures made for PPCs, including HCACs and OPPCs identified in the 
State plan; and would ensure that related payment adjustments do not 
limit beneficiary access to care. These provisions, as proposed, would 
apply to payments as specified under States' approved Medicaid State 
plans, effective no later than July 1, 2011. We proposed to modify the 
regulations at 42 CFR parts 434, 438, and 447 following general 
provider payment rules and preceding other provisions concerning 
reductions in provider payments. In addition, to ensure that these 
provisions apply to contracts that States use to provide Medicaid 
benefits using a managed care delivery system, we proposed to modify 
the regulations at 42 CFR part 438.
    Currently, the general rules regarding Medicaid State plan payments 
for Medicaid are provided at part 447 subpart A. We proposed to add a 
new Sec.  447.26 to indicate that FFP will not be available for 
expenditures made for PPCs. We have included in Sec.  447.26(a) a 
statement of the basis and purpose for the regulation, and in Sec.  
447.26(b), the definitions for the umbrella term PPCs, and the included 
terms HCACs, and other PPCs. We proposed to establish Medicare as the 
floor that all States must adopt, but allow flexibility for States to 
move beyond the Medicare definitions and settings. As States' programs 
evolve and they make additional requirements, we will require that 
necessary SPAs be submitted for implementation purposes.
    In Sec.  447.26(c), we proposed to set forth the general rule that 
State plans must preclude payment to providers for PPCs, and that FFP 
is not available for State expenditures for PPCs. To ensure beneficiary 
access to care, we specified that any reductions may be limited to the 
added cost resulting from the PPC.
    In Sec.  447.26(d), we have included a provision that will require 
States to require provider reporting of PPCs associated with Medicaid 
claims, or with courses of treatment for Medicaid beneficiaries that 
would otherwise be payable under Medicaid.
    In addition to these changes in part 447, we proposed including a 
requirement in Sec.  434.6(a)(12) for contracts for medical or 
administrative services that contractors do not make payment for PPCs, 
and require that providers comply with the reporting requirements in 
Sec.  447.26(d) as a condition of receiving payment. Likewise, to 
ensure that these provisions are included as required elements in 
Medicaid managed care contracts, we proposed including a requirement in 
Sec.  438.6(f)(2) that contracts must comply with both Sec.  
434.6(a)(12) and Sec.  447.26.
    We proposed these particular provisions because the information 
gathered in preparation for issuing the proposed rule indicated the 
need for a consistent authority under which States could implement PPC 
nonpayment policies; a consistent approach to identifying conditions 
for nonpayment; a streamlined terminology to indicate Medicaid HCAC 
payment policies; State flexibility to implement provisions suitable to 
their own systems; and a consistent provider reporting platform.
    We received the following comments in response to our proposals to 
revise the regulations text.
    Comment: One commenter believed that the language of the proposed 
regulation could be construed to limit payments even when the PPC 
condition was present on admission or initiation of provider treatment.
    Response: The language in the proposed regulation was intended to 
cover only situations where payment reduction was being applied to 
treatment for a condition not present on admission or commencement of 
treatment by that provider. However, we understand that clarifying the 
language of the regulation to emphasize this point would be helpful to 
and we have done so in this final rule. New Sec.  447.26(c)(3) language 
explicitly states that ``* * * no reduction in payment for a PPC will 
be imposed on a provider when the condition defined as a PPC for a 
particular patient existed prior to the initiation of treatment for 
that patient by that provider.'' This was implied in the previous 
language, but has now been made explicit. We agree with the comment and 
are providing this clarification.
    Comment: A number of commenters requested that CMS clarify that the 
HCAC category applies only to inpatient hospitals.
    Response: The final rule has revised regulatory language to clarify 
that HCAC category applies to all Medicaid inpatient hospital settings.
    Comment: One commenter expressed concern that expansion of PPC to 
nonhospital providers threatened the access of Medicaid beneficiaries 
to care. In particular, commenters asked CMS to clarify that Medicaid 
payment disallowance for PPC would not apply when the PPC was present 
at the time the provider commenced treatment of the patient.
    Response: The language in the proposed regulation was intended to 
cover only situations where payment reduction was being applied to 
treatment for a condition not present on admission or commencement of 
treatment by that provider. However, we understand that clarifying the 
language of the regulation to emphasize this point would be helpful and 
we have done so in this final rule. New Sec.  447.26(c)(2) language 
explicitly states that ``* * * no reduction in payment for a PPC will 
be imposed on a provider when the condition defined as a PPC for a 
particular patient existed prior to the initiation of treatment for 
that patient by that provider.'' This was implied in the previous 
language, but has now been made explicit. CMS agrees with the comment 
and is providing this clarification.
    Comment: A few commenters believed that the distinctions among the 
terms in the proposed rule were confusing and made it hard to 
understand which term applied to which criteria.
    Response: We have revised the regulatory text to make it clear that 
provider preventable conditions are clearly defined into two separate 
categories, healthcare acquired conditions (Medicare's HACs applicable 
only to inpatient hospital providers paid under the IPPS) and other 
provider-preventable conditions (conditions minimally defined as 
Medicare's 3 NCDs, applicable in any healthcare service setting).
    Comment: One commenter requested clarification on the purpose of 
provider reporting and how CMS expects States to use reported 
information. Another commenter noted that there is no clear provision 
on how States are to report this data to CMS. One State questioned 
whether the SPA will have to specify how the reporting will be done, or 
if States will need to assure that they will comply with the 
requirement.
    Response: We are requiring that States impose provider self-
reporting through claims systems because that information will be fed 
by States to CMS. CMS and States will use this data to inform policy 
making. Language assuring compliance with this provision is 
incorporated in the State plan pre-print associated with this 
provision.
    Comment: One commenter supports nonpayment for all PPCs as they 
pertain to the dual eligible population. This

[[Page 32833]]

commenter urges CMS to codify provisions that prohibit Medicaid claim 
payment for claims that have been denied by Medicare based on the 
presence of a HAC.
    Response: This is a significant area of concern, and we have 
revised the final regulation to clarify the prohibition on Medicaid 
payment for claims that have been denied (in full or in part) by 
Medicare, to reflect this recommendation.
    Comment: One commenter noted that the proposed rule requires States 
to establish a provider reporting requirement for PPCs and requested 
that amend the final rule to allow States time to implement the PPC 
policies in general.
    Response: As a requirement of the final rule, States will implement 
the provider self-reporting through payment claims systems regardless 
of the provider's intention to bill. We anticipate that States and 
providers, especially those groups of providers that have not been 
subject to Medicare's HAC policy, will need to work collaboratively to 
develop and implement reporting systems that would complement existing 
payment structures.

III. Provisions of the Final Rule

    This final rule incorporates the provisions of the proposed rule 
with the following exceptions.
    In Sec.  447.26(b), we are revising the definition of health care-
acquired condition to mean a condition occurring in any inpatient 
hospital setting, identified as a HAC by the Secretary under section 
1886(d)(4)(D)(iv) of the Act for purposes of the Medicare program 
identified in the State plan as described in section 1886(d)(4)(D)(ii) 
and (iv) of the Act; other than Deep Vein Thrombosis (DVT)/Pulmonary 
Embolism (PE) related to total knee replacement or hip replacement 
surgery in pediatric and/or obstetric patients.
    In Sec.  447.26(c)(1), we are revising the language to read ``A 
State plan must provide that no medical assistance will be paid for 
``provider-preventable conditions'' as defined in this section; and as 
applicable for individuals dually eligible for both the Medicare and 
Medicaid programs.''

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In accordance with the Act, we solicited public comments on the 
proposed collection of information, with a 30-day comment period, in 
the proposed rule that published on February 17, 2011 (76 FR 9283). We 
did not receive any substantive comments related to the proposed 
information collection requirements or burdens and, therefore, we are 
retaining the following requirements and estimates that were set out in 
the proposed rule.

A. ICRs Regarding Contract Requirements (Sec.  438.6)

    Section 438.6(f)(2) will also require States which provide medical 
assistance using a managed care delivery system to modify their managed 
care contracts to reflect the PPCs payment adjustment policies as 
applied through these regulations. The burden associated with this 
requirement is the time and effort necessary for a State to amend its 
managed care contracts to reflect these policies. We estimated that 48 
States will be required to comply with this requirement. We also 
estimated that it will take 8 hours for each State to revise its 
contracts to comply with this requirement and submit the amended 
contract to CMS for review and approval. The total estimated annual 
burden associated with this requirement is 384 hours at a cost of 
$20.67 per hour per State.

B. ICRs Regarding the Prohibition on Payment for Provider-Preventable 
Conditions (Sec.  447.26)

    Effective July 1, 2011, Sec.  Section 447.26(c)(1) will require 
States to submit SPAs for CMS approval that would reduce payments to 
providers by amounts related to PPCs. The burden associated with this 
requirement will be the time and effort necessary for a State to submit 
its SPA and the associated pre-print. We estimated that 50 States, the 
District of Columbia, and Territories will be required to comply with 
this requirement. We further estimated that it will take each State 7 
hours to submit the aforementioned documentation to CMS. The total 
estimated burden associated with this requirement would be 385 hours at 
a cost of $20.67 per hour per State.
    We estimated that it will take each State 7 hours because we intend 
to issue a template to States to simplify the process of making the 
related amendment to the Medicaid State plan.
    Section 447.26(c)(2) will also require States to implement provider 
reporting requirements to ensure that PPCs are identified in claims for 
Medicaid payment. The burden associated with this requirement is the 
time and effort necessary to develop and implement provider reporting 
requirements that are effective with the provisions of this regulation. 
We estimated that 50 States, the District of Columbia, and Territories 
will be required to comply with this requirement. We estimated that it 
will take 24 hours for each State to develop and implement the provider 
reporting requirements as specified above. The total estimated burden 
associated with this requirement will be 1320 hours at a cost of $20.67 
per hour per State. We believe that this estimate is reasonable because 
we are requiring that States have providers use their existing claims 
processes to report identified events.

[[Page 32834]]



                                                Table 1--Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Hourly
                                                                                Burden       Total       labor    Total labor      Total
     Regulation section(s)       OMB  Control  No.    Number of    Number of      per       annual      cost of      cost of     capital/     Total cost
                                                     respondents   responses   response     burden     reporting   reporting    maintenance      ($)
                                                                                (hours)     (hours)       ($)         ($)       costs  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
438.6(f)(2)...................  0938-NEW..........            48          48           8         384       20.67     7,937.28             0     7,937.28
447.26(c)(1)..................  0938-NEW..........            55          55           7         385       20.67      7957.95             0     7,957.5
447.26(c)(2)..................  0938-NEW..........            55          55          24       1,320       20.67    27,284.4              0    27,284.4
                               -------------------------------------------------------------------------------------------------------------------------
    Total.....................  ..................           158         158          39        2089  ..........  ...........             0    43,179.18
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The estimated annual burden associated with the requirements under 
438.6(f)(2), 447.26(c)(1), and 447.26(c)(2) is 2,089 hours (total) at a 
cost of $43,179.18 (total) or $806.13 (per State).

                                                Table 2--Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Hourly
                                                                                Burden       Total       labor    Total labor      Total
     Regulation section(s)       OMB  Control  No.    Number of    Number of      per       annual      cost of      cost of     capital/     Total cost
                                                     respondents   responses   response     burden     reporting   reporting    maintenance      ($)
                                                                                (hours)     (hours)       ($)         ($)       costs  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
438.6(f)(2)...................  0938-NEW..........            48          48           8         384       20.67     7,937.28             0     7,937.28
447.26(c)(1)..................  0938-NEW..........            50          50           7         350       20.67     7,234.5              0     7,234.5
447.26(c)(2)..................  0938-NEW..........            50          50          24       1,200       20.67    2,4804                0    2,4804
                               -------------------------------------------------------------------------------------------------------------------------
    Total.....................  ..................            98         148          39       1,934  ..........  ...........             0    39,975.78
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The estimated annual burden associated with the requirements under 
438.6(f)(2), 447.26(c)(1), and 447.26(c)(2) is 1,934 hours (total) at a 
cost of $39,975.78 (total) or $806.13 (per State).
    To be assured consideration, comments and recommendations for the 
proposed information collections must be received by the OMB desk 
officer at the address below, no later than 5 p.m. on July 7, 2011.
    OMB, Office of Information and Regulatory Affairs, Attention: CMS 
Desk Officer, Fax Number: (202) 395-5806. Fax Number: (202) 395-6974.

V. Regulatory Impact Statement

A. Statement of Need

    This final rule implements section 2702 of the Affordable Care Act 
which directs the Secretary to issue Medicaid regulations effective as 
of July 2011, prohibiting Federal payments to States (under section 
1903 of the Act) for any amounts expended for providing medical 
assistance for HCACs. It will also authorize States to identify other 
PPCs for which Medicaid payment would be prohibited. We view this 
regulation as one step of a larger approach to address the problem of 
PPCs.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(February 2, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 
13132 on Federalism (August 4, 1999), and the Congressional Review Act 
(5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule under the Congressional Review Act.
    It is difficult to estimate the amount which will be withheld from 
providers under this regulation, as not all of these events will be 
billed. However, it is instructive to note that the total dollar amount 
of Medicare claims denied under its HAC policy is approximately $20 
million per year (see 75 FR 23895, May 4, 2010). The original 
regulation creating the Medicare HACs was published in the August 19, 
2008 Federal Register (73 FR 48433). In addition, estimates were 
conducted by the Congressional Budget Office (CBO) and the CMS Office 
of the Actuary (OACT) on the impact of section 2702 of the Affordable 
Care Act. The CBO estimate concluded there would be no impact 
associated with section 2702 of the Affordable Care Act (CBO and JCT, 
2010 Estimate). The CMS OACT estimate (Estimated Financial Effects of 
the ``Patient Protection and Affordable Care Act,'' as Amended, 2010) 
projected an impact from section 2702 of the Affordable Care Act on the 
Medicaid program of cost savings of $2 million for FY 2011 ($1 million 
for the Federal share and $1 million for the State share), with an 
aggregate cost savings of $35 million ($20 million for the Federal 
share and $15 million for the State share) for FYs 2011 through 2015. 
The Federal and State share cost savings, as result of denied payments, 
are represented by the reduction in transfers from Medicaid to 
hospitals. These estimates could be higher if States elect to expand 
beyond the minimum requirements of this rule.

[[Page 32835]]



                                                   Table 3--Medicaid Impacts for FYs 2011 Through 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              FY impact ($ millions)
                    Medicaid impacts                     -----------------------------------------------------------------------------------------------
                                                               2011            2012            2013            2014            2015            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Share...........................................              -1              -4              -5              -5              -5             -20
State Share.............................................              -1              -3              -3              -4              -4             -15
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................              -2              -7              -8              -9              -9             -35
--------------------------------------------------------------------------------------------------------------------------------------------------------

    There are administrative cost impacts on States to modify their 
systems to meet reporting requirements, but we believe these are not 
significant. As noted above, the reporting system in this final rule 
relies on an existing billing system currently in place. Both States 
and providers already have billing, claiming, and payment systems in 
place to act upon the information obtained. The costs reported in 
section IV of this final rule, Collection of Information Requirements, 
amount to an additional $39,976 dollars aggregate across all States.
    Hospitals may incur additional costs to reduce PPCs. Such costs 
include hiring additional nurses to ensure enforcement of the infection 
prevention policies. In turn, preventing or reducing HCACs will lead to 
a reduction in direct health spending, which is a benefit realized by 
Medicaid, hospitals and other payers.
    The Joint Commission requires hospitals to have established 
programs for Quality Improvement, Risk Management, Safety, and 
Infection Control. As a result, a majority of hospitals already have in 
place programs to avert Medicare HACs and thus would not incur new 
costs to implement parallel programs to avert Medicaid HCACs. 
Furthermore, we anticipate a public benefit to all providers and payers 
since programs that hospitals develop to avoid Medicaid HCACs will 
likely benefit all patients and reduce health care costs. Patient 
benefits resulting from a reduction in HCAC may include an increase in 
healthy years of life. However, this public benefit will derive from 
possible responses by hospitals and not from this regulation itself.
    We realize that the overall problem of HCACs cannot be completely 
addressed in this regulation, as this final regulation is one step of 
an overall approach. Consequently, the estimated economic impacts from 
all HHS initiatives to address HCACs may result in much higher savings 
impact than presented in this analysis. However, such economic savings, 
for example, will not derive from this regulation alone, but will in 
part come from the knowledge that State and Federal governments gain 
from the reporting requirements created by this regulation. That 
knowledge will in turn inform future HHS initiatives to reduce excess 
morbidity and mortality attributable to PPCs.
    The RFA requires agencies to analyze options for regulatory relief 
for small entities, if a rule has a significant impact on a substantial 
number of small entities. Most hospitals, other providers, and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $7.0 million to $34.5 million in any 1 year. Individuals 
and States are not included in the definition of a small entity. 
Guidance issued by the Department of Health and Human Services 
interpreting the RFA considers effects to be economically significant 
if they reach a threshold of 3 to 5 percent or more of total revenue or 
total costs. As illustrated in Table 1, any decrease in payments, as a 
result of this regulation, to small entities should be significantly 
less than this threshold. Therefore, we are not preparing an analysis 
for the RFA because the Secretary has determined that this final rule 
will not have a significant economic impact on a substantial number of 
small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA if a rule may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 604 of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a Metropolitan Statistical Area for Medicare 
payment regulations and has fewer than 100 beds. We are not preparing 
an analysis for section 1102(b) of the Act because the Secretary has 
determined that this final rule will not have a significant impact on 
the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2011, that 
threshold is approximately $136 million. This rule will have no 
consequential effect on State, local, or tribal governments in the 
aggregate or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. While this regulation does not impose substantial costs 
on State or local governments, it does preempt some State laws. The 
requirements of Executive Order 13132 are applicable.
    Executive Order 13132 sets forth a process to be followed by the 
Federal government whenever Federal regulatory processes may affect or 
preempt State regulations or laws. We are aware that many States do 
have regulations for Medicaid nonpayment in the event that specified 
adverse events occur during provider care. This final rule is intended 
to create a Federal legal minimum for such State regulations. States 
could continue to enact more stringent laws or regulations upon 
approval of a Medicaid SPA by CMS to assure that there is no adverse 
impact on Medicaid beneficiary access to care.
    This final rule derives from section 2702 of the Affordable Care 
Act and other CMS statutory authority. Under the requirements of 
Executive Order 13132 and the requirements of section 2702 of the 
Affordable Care Act, we have consulted with the States before issuing 
this final rule. Major portions of the regulation are, in fact, derived 
from comparable State regulations. Significant regulatory authority in 
this area would remain with the States should the proposed regulation 
become final. As stated, the final rule does not completely preempt 
State law, but merely sets a Federal minimum standard.
    We are meeting the requirements of Executive Order 13132 by issuing 
this final rule 30 days prior to the effective

[[Page 32836]]

date of July 1, 2011, set forth in the Affordable Care Act.

C. Anticipated Effects

1. Effects on State Medicaid Programs
    The effects on State Medicaid programs as a result of this 
provision will depend on various factors. For instance, as we state in 
the preamble, there are 21 States that have already implemented similar 
policies. While we have reviewed existing State policies and 
incorporated those policies that we believe would best apply on a 
national level, these States will have to make changes to comply with 
the minimums set in this final rule. In addition, States will have to 
work through the SPA review process to ensure that their existing 
policies do not serve to limit beneficiaries' access to healthcare.
    The States that have used State plan authority to implement their 
nonpayment policies will need to review their policies and ensure that 
they comply with any final provisions of these rules. These States will 
likely have to submit revisions to their State plans. In addition, the 
States that implemented these policies through some other authority 
like State law or administrative procedures will have to submit new 
SPAs for review and work with CMS to ensure that their policies 
effective July 1, 2011, are in line with the final provisions of these 
rules. States that have elected not to implement Medicaid specific 
policies or that do not have related policies at all will need to 
submit new SPAs. Further, States which use a managed care delivery 
system to provide Medicaid benefits to beneficiaries will have to amend 
and submit for CMS review and approval managed care contracts that 
reflect these new requirements. While this regulation is effective on 
July 1, 2011, most States will already have their managed care 
contracts for the fiscal year in place by that time and there may be 
some delay in incorporating new language in their managed care 
contracts. We will issue subregulatory guidance to States requiring 
that appropriate changes be made to managed care contracts to comply 
with the regulation.
    All States will need to incorporate the reporting requirements into 
their claims systems. In addition, States will need to evaluate the 
best ways in which to identify and reduce payment for PPCs under their 
respective Medicaid plans.
    We anticipate that this provision will prompt programmatic changes 
for States regarding quality improvement considerations within health 
care systems. This provision, while it is a payment provision, is 
primarily targeted at preventing medical errors.
2. Effects on Other Providers
    We anticipate that these provisions will prompt health care 
providers to adopt quality programs that would limit the risk of 
providing services or using resources, in error, that will not be 
reimbursed.
    We anticipate that the reporting requirements will ultimately be a 
catalyst for providers in developing quality practices to reduce the 
risks associated with receiving care at their facilities and promote 
overall quality improvements.
3. Effects on the Medicaid Program
    Medicare's and States' experience has demonstrated that related 
policies often do not produce substantial short-term financial savings 
within health care systems. Medicare estimated that the policy will 
reduce its spending by an aggregate amount of about $80,000,000 from FY 
2009 through FY 2013, or by less than 0.01 percent of total annual 
spending on inpatient hospital services (75 FR 50661). States report 
similar short-term savings. However, there are more significant gains 
to be realized when considering the broader impact of increased quality 
on the health system overall, or more exactly the savings created when 
preventable conditions and related treatment are measured.
    The anticipated public benefit to all providers and payers from 
programs that hospitals develop to avoid Medicaid HCACs will likely 
benefit all patients and reduce health care costs. This includes, for 
example, Medicaid beneficiaries realizing an increase in healthy years 
of life as a result of the reduction in HCACs. However, this public 
benefit will derive from possible responses by hospitals and not from 
this regulation itself.

D. Alternatives Considered: Conditions Identified as Provider-
Preventable Conditions

    The statute requires that Medicaid, at a minimum, recognize 
Medicare's current list of HACs. We considered proposing regulatory 
action that included only the conditions listed as Medicare HACs. 
However, when considering current State practices our research 
concluded that many States' policies included conditions not identified 
by Medicare as HACs. We concluded that such limited action would not 
serve the program purposes of ensuring high quality care and would 
potentially limit State flexibility to protect beneficiaries and 
program integrity. Similarly, we considered proposing regulatory action 
that included only the inpatient hospital setting. Again, after 
assessing current State practices, as well as industry-based research, 
there is clear indication that data is available to States that will 
allow them to employ evidence based policy practices beyond the 
inpatient hospital setting. To provide States full flexibility to 
protect beneficiaries and the program, we elected the more 
comprehensive approach that we discussed in the proposed rule. We 
considered defining OPPC as, ``a condition occurring in any health care 
setting that could have reasonably been prevented through the ordinary 
provision of high quality care during the course of treatment * * *'' 
We believed that this terminology would limit additional requirements 
on States to produce evidence of preventability. However, after 
discussing the terminology and scientific parameters that exist in 
relation to this issue, we proposed that the term be defined as, ``a 
condition that could have reasonably been prevented through the 
application of evidence based guidelines.''

E. Conclusion

    For the reasons outlined in the RIA, we are not preparing an 
analysis for either the RFA or section 1102(b) of the Act because we 
have determined that this final rule would not have a direct 
significant economic impact on a substantial number of small entities 
or a direct significant impact on the operations of a substantial 
number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 434

    Grant programs--health, Health maintenance organizations (HMO), 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 438

    Grant programs--health, Medicaid, Reporting and recordkeeping 
requirements.

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs--health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR parts 434, 438, and 447, as set forth 
below:

[[Page 32837]]

PART 434--CONTRACTS

0
1. The authority citation for part 434 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart A--General Provisions

0
2. Section 434.6 is amended by--
0
A. Revising the introductory text of paragraph (a).
0
B. Removing the semicolons from the end of paragraphs (a)(1) through 
(a)(9), and the semicolon and the word ``and'' from the end of 
paragraph (a)(10) and replacing them with a period.
0
C. Adding a new paragraph (a)(12).
    The revision and addition read as follows:


Sec.  434.6  General requirements for all contracts and subcontracts.

    (a) Contracts. All contracts under this part must include all of 
the following:
    * * *
    (12) Specify the following:
    (i) No payment will be made by the contractor to a provider for 
provider-preventable conditions, as identified in the State plan.
    (ii) The contractor will require that all providers agree to comply 
with the reporting requirements in Sec.  447.26(d) of this subchapter 
as a condition of payment from the contractor.
    (iii) The contractor will comply with such reporting requirements 
to the extent the contractor directly furnishes services.
* * * * *

PART 438--MANAGED CARE

0
3. The authority citation for part 438 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart A--General Provisions

0
4. Section 438.6 is amended by revising paragraph (f) to read as 
follows:


Sec.  438.6  Contract requirements.

* * * * *
    (f) Compliance with contracting rules. All contracts must meet the 
following provisions:
    (1) Comply with all applicable Federal and State laws and 
regulations including title VI of the Civil Rights Act of 1964; title 
IX of the Education Amendments of 1972 (regarding education programs 
and activities); the Age Discrimination Act of 1975; the Rehabilitation 
Act of 1973; and the Americans with Disabilities Act of 1990 as 
amended.
    (2) Provide for the following:
    (i) Compliance with the requirements mandating provider 
identification of provider-preventable conditions as a condition of 
payment, as well as the prohibition against payment for provider-
preventable conditions as set forth in Sec.  434.6(a)(12) and Sec.  
447.26 of this subchapter.
    (ii) Reporting all identified provider-preventable conditions in a 
form or frequency as may be specified by the State.
    (3) Meet all the requirements of this section.
* * * * *

PART 447--PAYMENTS FOR SERVICES

0
5. The authority citation for part 447 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart A--Payments: General Provisions

0
6. Section 447.26 is added to read as follows:


Sec.  447.26  Prohibition on payment for provider-preventable 
conditions.

    (a) Basis and purpose. The purpose of this section is to protect 
Medicaid beneficiaries and the Medicaid program by prohibiting payments 
by States for services related to provider-preventable conditions.
    (1) Section 2702 of the Affordable Care Act requires that the 
Secretary exercise authority to prohibit Federal payment for certain 
provider preventable conditions (PPCs) and health care-acquired 
conditions (HCACs).
    (2) Section 1902(a)(19) of the Act requires that States provide 
care and services consistent with the best interests of the recipients.
    (3) Section 1902(a)(30) of the Act requires that State payment 
methods must be consistent with efficiency, economy, and quality of 
care.
    (b) Definitions. As used in this section--
    Health care-acquired condition means a condition occurring in any 
inpatient hospital setting, identified as a HAC by the Secretary under 
section 1886(d)(4)(D)(iv) of the Act for purposes of the Medicare 
program identified in the State plan as described in section 
1886(d)(4)(D)(ii) and (iv) of the Act; other than Deep Vein Thrombosis 
(DVT)/Pulmonary Embolism (PE) as related to total knee replacement or 
hip replacement surgery in pediatric and obstetric patients.
    Other provider-preventable condition means a condition occurring in 
any health care setting that meets the following criteria:
    (i) Is identified in the State plan.
    (ii) Has been found by the State, based upon a review of medical 
literature by qualified professionals, to be reasonably preventable 
through the application of procedures supported by evidence-based 
guidelines.
    (iii) Has a negative consequence for the beneficiary.
    (iv) Is auditable.
    (v) Includes, at a minimum, wrong surgical or other invasive 
procedure performed on a patient; surgical or other invasive procedure 
performed on the wrong body part; surgical or other invasive procedure 
performed on the wrong patient.
    Provider-preventable condition means a condition that meets the 
definition of a ``health care-acquired condition'' or an ``other 
provider-preventable condition'' as defined in this section.
    (c) General rules.
    (1) A State plan must provide that no medical assistance will be 
paid for ``provider-preventable conditions'' as defined in this 
section; and as applicable for individuals dually eligible for both the 
Medicare and Medicaid programs.
    (2) No reduction in payment for a provider preventable condition 
will be imposed on a provider when the condition defined as a PPC for a 
particular patient existed prior to the initiation of treatment for 
that patient by that provider.
    (3) Reductions in provider payment may be limited to the extent 
that the following apply:
    (i) The identified provider-preventable conditions would otherwise 
result in an increase in payment.
    (ii) The State can reasonably isolate for nonpayment the portion of 
the payment directly related to treatment for, and related to, the 
provider-preventable conditions.
    (4) FFP will not be available for any State expenditure for 
provider-preventable conditions.
    (5) A State plan must ensure that non-payment for provider-
preventable conditions does not prevent access to services for Medicaid 
beneficiaries.
    (d) Reporting. State plans must require that providers identify 
provider-preventable conditions that are associated with claims for 
Medicaid payment or with courses of treatment furnished to Medicaid 
patients for which Medicaid payment would otherwise be available.

    Authority:  (Catalog of Federal Domestic Assistance Program No. 
93.778, Medical Assistance Program)


[[Page 32838]]


    Dated: May 25, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: May 27, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-13819 Filed 6-1-11; 11:15 am]
BILLING CODE 4120-01-P